Self Directed Investor Inc
SDI: "Empowering investors with ideas and education"
Symbol Lookup »  
Topics:ChinaETFsEarningsEconomyEnergyForexGoldIncomeLessonsIdeasTrading

  • Other news: News from PR Newswire
| More

RAFI ETFs YTD: Boom Or Bust?

Wed, Oct 24, 9:15 AM ET, by Michael Johnston

As the ETF industry continues to develop, many investors have begun to move away from the more “traditional” funds in favor of ETFs that employ unique methodologies that are aimed at delivering potentially higher returns. Of the most noteworthy and popular innovations has been the development of alternative weighting strategies, specifically the RAFI methodology [see 101 ETF Lessons Every Advisor Should Learn].

Several years ago, Research Affiliates, a global lead in innovative investing and asset allocation strategies, developed the fundamentally-weighted indexes that utilize the RAFI methodology. Now there are nearly 20 different exchange-traded products that are linked to RAFI-weighted indexes. But before taking a look at the performance of these popular funds, a fundamental understanding of the unique methodology is essential.

Understanding RAFI

The RAFI weighting methodology is relatively straightforward. While traditional cap-weighted indexes determine allocations based on market capitalization, RAFI funds take into account several fundamental factors to determine the weighting of an individual holding. These factors include cash flow, book value, sales and dividends [see also RAFI ETFdb Portfolio].

The primary criticism of market capitalization weighted indexes is that there is a direct relationship between stock price and the weighting assigned. The RAFI methodology’s goal is to effectively break the link between share price and weight within an index. And while cap-weighting features a number of potential advantages - such as low cost and maintenance - their noteworthy drawbacks warrant investors to perhaps take a look alternative strategies, such as RAFI. For example, cap-weighted methodologies tend to overweight overvalued stocks and underweight undervalued ones, which can obviously create a potential drag on returns.

A look at the performance of these fundamentally-weighted ETFs in comparison to their cap-weighted counterparts highlights the impact of weighting methodologies on bottom line returns [see the best performing ETFs in 2012].

How Do RAFI ETFs Stack Up YTD?

Ticker RAFI Index RAFI ETF YTD Cap-Weighted Index Cap-Weighted Index YTD
PRF FTSE RAFI 1000 15.36% Russell 1000 Index 16.28%
PXF FTSE RAFI Developed Markets ex-U.S. 10.61% MSCI EAFE Index 9.48%
PAF FTSE RAFI Asia Pacific ex-Japan 17.38% MSCI AC Asia Pacific ex-Japan 13.21%
PXH FTSE RAFI Emerging Markets 9.05% MSCI Emerging Markets 9.92%
PDN FTSE RAFI Developed ex-U.S. Small-Mid 10.31% MSCI EAFE Small Cap 12.66%
PRFZ FTSE RAFI U.S. 1500 Small-Mid 12.19% Russell 2000 14.23%
*Year-to-date returns as of 10/22/2012

Out of six Powershares RAFI ETFs, only two funds have outperformed their corresponding cap-weighted indexes; the FTSE RAFI Developed Markets ex-U.S. (PXF) and FTSE RAFI Asia Pacific ex-Japan (PAF) ETFs. The underperforming RAFI ETFs do not, however, trail far behind their cap-weighted competitors. But for those cost-conscious investors, the high price tag on these ETFs, which average around 0.75% to 0.8%, may not be worth it since only a few have proven that the RAFI methodology trumps traditionally-weighted indexes.

Value YTD Core YTD Growth YTD
Large Fundamental Pure Large Value Portfolio (PXLV) 16.27% Fundamental Pure Large Core Portfolio (PXLC) 13.55% Fundamental Pure Large Growth Portfolio (PXLG) 18.05%
Mid Fundamental Pure Mid Value Portfolio (PXMV) 15.64% Fundamental Pure Mid Core Portfolio (PXMC) 9.89% Fundamental Pure Mid Growth Portfolio (PXMG) 9.40%
Small Fundamental Pure Small Value Portfolio (PXSV) 14.28% Fundamental Pure Small Core Portfolio (PXSC) 9.29% Fundamental Pure Small Growth Portfolio (PXSG) 10.26%
*Year-to-date returns as of 10/22/2012

PowerShares’ lineup of value, core and growth “Fundamental Pure” ETFs have certainly raised the bar in 2012, delivering double digit year-to-date returns. Of the lot, the large-cap focused funds have all outperformed their mid and small-cap counterparts across all three investment styles. Thus far in 2012, the biggest winner has been the RAFI Fundamental Pure Large Growth Portfolio (PXLG) with its whopping 18.05% year-to-date return [see Free Report: How To Pick The Right ETF Every Time].

Ticker ETF YTD
PHB Fundamental High Yield Corporate Bond Portfolio 8.64%
PFIG Fundamental Investment Grade Corporate Bond Portfolio 5.21%
*Year-to-date returns as of 10/22/2012

For those looking for fixed income exposure, perhaps the RAFI methodology is not the best option, as year-to-date returns are significantly lagging in comparison to other funds in PHB’s and PFIG’s respective categories.

While the fundamentally-weighted PHB does offer a relatively handsome 8.92% return, the comparable SPDR Barclays Capital High Yield Bond ETF [etf ticker='JNK' ratings='true'] has logged in gains of 11.02% thus far in 2012. And in regards to PFIG, the ultra popular iBoxx $ Investment Grade Corporate Bond Fund [etf ticker='LQD' ratings='true'] has delivered year-to-date returns of 10.95%, nearly double that of PFIG’s [see also 5 High Yielding Real Estate ETFs].

Follow me on Twitter @DPylypczak

[For more ETF analysis, make sure to sign up for our free ETF newsletter or try a free seven day trial to ETFdb Pro]

Disclosure: No positions at time of writing.

Click here to read the original article on ETFdb.com.


SDI Glossary: "Bond" Definition
SDI Glossary: "price" Definition
SDI Glossary: "ETFs" Definition
SDI Glossary: "Yield" Definition
This Article's Word Cloud:   Asia   Bond   Core   Corporate   Developed   ETFdb   ETFs   Emerging   FTSE   Fundamental   Growth   High   Index   Japan   Large   MSCI   Markets   PFIG   Pacific   Portfolio   Pure   RAFI   Small   Value   Year   comparison   counterparts   date   fundamentally   funds   have   indexes   investors   look   methodologies   methodology   only   popular   price   returns   strategies   that   their   these   traditional   true   unique   weighted   weighting   year

| More

Shares of RYH Now Oversold
Mon, Feb 8, 3:54 PM ET, by ETF Channel

In trading on Monday, shares of the Guggenheim S&P 500 Equal Weight Health Care ETF ...

ITB Crowded With Sellers
Mon, Feb 8, 3:54 PM ET, by ETF Channel

In trading on Monday, shares of the iShares U.S. Home Construction ETF (ITB) entered into ...

RFG Crosses Critical Technical Indicator
Mon, Feb 8, 3:54 PM ET, by ETF Channel

In trading on Monday, shares of the Guggenheim S&P MidCap 400 Pure Growth ETF (RFG) ...

MTUM Crowded With Sellers
Mon, Feb 8, 3:54 PM ET, by ETF Channel

In trading on Monday, shares of the iShares MSCI USA Momentum Factor ETF (MTUM) entered ...

Shares of IYH Now Oversold
Mon, Feb 8, 3:54 PM ET, by ETF Channel

In trading on Monday, shares of the iShares U.S. Healthcare ETF (IYH) entered into oversold ...

Facebook Takes Over #18 Spot From Mallinckrodt
Mon, Feb 8, 12:14 PM ET, by ETF Channel

In a study of analyst recommendations at the major brokerages, for the underlying components of ...

FXL Crosses Critical Technical Indicator
Mon, Feb 8, 12:14 PM ET, by ETF Channel

In trading on Monday, shares of the First Trust Technology AlphaDEX Fund ETF (FXL) entered ...

XLY Crosses Critical Technical Indicator
Mon, Feb 8, 12:14 PM ET, by ETF Channel

In trading on Monday, shares of the Consumer Discretionary Select Sector SPDR Fund ETF (XLY) ...

QLD Crosses Critical Technical Indicator
Mon, Feb 8, 12:14 PM ET, by ETF Channel

In trading on Monday, shares of the ProShares Ultra QQQ ETF (QLD) entered into oversold ...

RPG Crosses Critical Technical Indicator
Mon, Feb 8, 12:14 PM ET, by ETF Channel

In trading on Monday, shares of the Guggenheim S&P 500 Pure Growth ETF (RPG) entered ...

VXF, LNKD, INCY, BMRN: ETF Outflow Alert
Mon, Feb 8, 12:14 PM ET, by ETF Channel

Symbols mentioned in this story: VXF, LNKD, INCY, BMRN Exchange traded funds (ETFs) trade just ...

IWC Crowded With Sellers
Mon, Feb 8, 10:54 AM ET, by ETF Channel

In trading on Monday, shares of the iShares Micro-Cap ETF (IWC) entered into oversold territory, ...

SKYY Crosses Critical Technical Indicator
Mon, Feb 8, 10:54 AM ET, by ETF Channel

In trading on Monday, shares of the First Trust ISE Cloud Computing Index Fund ETF ...

QQEW Crosses Critical Technical Indicator
Mon, Feb 8, 10:54 AM ET, by ETF Channel

In trading on Monday, shares of the First Trust NASDAQ-100 Equal Weighted Index Fund ETF ...

iShares MSCI Italy Capped (EWI) Enters Oversold Territory
Mon, Feb 8, 10:54 AM ET, by ETF Channel

In trading on Monday, shares of the iShares MSCI Italy Capped ETF (EWI) entered into ...

Shares of TQQQ Now Oversold
Mon, Feb 8, 10:54 AM ET, by ETF Channel

In trading on Monday, shares of the ProShares UltraPro QQQ ETF (TQQQ) entered into oversold ...

QQQ Crowded With Sellers
Mon, Feb 8, 10:54 AM ET, by ETF Channel

In trading on Monday, shares of the PowerShares QQQ ETF (QQQ) entered into oversold territory, ...

PowerShares S&P SmallCap Health Care Portfolio (PSCH) Enters Oversold Territory
Mon, Feb 8, 10:54 AM ET, by ETF Channel

In trading on Monday, shares of the PowerShares S&P SmallCap Health Care Portfolio ETF (PSCH) ...

Shares of PWB Now Oversold
Mon, Feb 8, 10:54 AM ET, by ETF Channel

In trading on Monday, shares of the PowerShares Dynamic Large Cap Growth Portfolio ETF (PWB) ...

Analysts Forecast 12% Upside For ONEV
Mon, Feb 8, 8:14 AM ET, by ETF Channel

Looking at the underlying holdings of the ETFs in our coverage universe at ETF Channel, ...

Implied JKL Analyst Target Price: $129
Mon, Feb 8, 8:14 AM ET, by ETF Channel

Looking at the underlying holdings of the ETFs in our coverage universe at ETF Channel, ...

Implied EES Analyst Target Price: $87
Mon, Feb 8, 8:14 AM ET, by ETF Channel

Looking at the underlying holdings of the ETFs in our coverage universe at ETF Channel, ...

ONEO's Holdings Imply 20% Gain Potential
Mon, Feb 8, 8:14 AM ET, by ETF Channel

Looking at the underlying holdings of the ETFs in our coverage universe at ETF Channel, ...

The Implied Analyst 12-Month Target For IEO
Mon, Feb 8, 8:14 AM ET, by ETF Channel

Looking at the underlying holdings of the ETFs in our coverage universe at ETF Channel, ...

Junior Gold Miners Breaks Above 200-Day Moving Average - Bullish for GDXJ
Fri, Feb 5, 4:14 PM ET, by ETF Channel

In trading on Friday, shares of the Junior Gold Miners ETF (GDXJ) crossed above their ...

PEZ Crowded With Sellers
Fri, Feb 5, 4:14 PM ET, by ETF Channel

In trading on Friday, shares of the PowerShares DWA Consumer Cyclicals Momentum Portfolio ETF (PEZ) ...

IGV Crosses Critical Technical Indicator
Fri, Feb 5, 4:14 PM ET, by ETF Channel

In trading on Friday, shares of the iShares North American Tech-Software ETF (IGV) entered into ...

DWAS Crosses Critical Technical Indicator
Fri, Feb 5, 4:14 PM ET, by ETF Channel

In trading on Friday, shares of the PowerShares DWA SmallCap Momentum Portfolio ETF (DWAS) entered ...

PowerShares S&P 500 High Quality Portfolio Experiences Big Outflow
Fri, Feb 5, 4:14 PM ET, by ETF Channel

Symbols mentioned in this story: SPHQ, EMR, RTN, CHRW Exchange traded funds (ETFs) trade just ...

VFH, WFC, JPM, BRK.B: ETF Inflow Alert
Fri, Feb 5, 4:14 PM ET, by ETF Channel

Symbols mentioned in this story: VFH, WFC, JPM, BRK.B Exchange traded funds (ETFs) trade just ...

HYG: ETF Outflow Alert
Fri, Feb 5, 4:14 PM ET, by ETF Channel

Symbols mentioned in this story: HYG Exchange traded funds (ETFs) trade just like stocks, but ...

PNQI Crowded With Sellers
Fri, Feb 5, 10:54 AM ET, by ETF Channel

In trading on Friday, shares of the PowerShares NASDAQ Internet Portfolio ETF (PNQI) entered into ...

VDC, CL, KR, SYY: ETF Inflow Alert
Fri, Feb 5, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: VDC, CL, KR, SYY Exchange traded funds (ETFs) trade just ...

Shares of FDN Now Oversold
Fri, Feb 5, 10:54 AM ET, by ETF Channel

In trading on Friday, shares of the First Trust Dow Jones Internet Index Fund ETF ...

Add Up The Pieces: SPYG Could Be Worth $113
Fri, Feb 5, 8:14 AM ET, by ETF Channel

Looking at the underlying holdings of the ETFs in our coverage universe at ETF Channel, ...

Add Up The Parts: XLG Could Be Worth $163
Fri, Feb 5, 8:14 AM ET, by ETF Channel

Looking at the underlying holdings of the ETFs in our coverage universe at ETF Channel, ...

RFG's Holdings Could Mean 24% Gain Potential
Fri, Feb 5, 8:14 AM ET, by ETF Channel

Looking at the underlying holdings of the ETFs in our coverage universe at ETF Channel, ...

PHO's Holdings Imply 18% Gain Potential
Fri, Feb 5, 8:14 AM ET, by ETF Channel

Looking at the underlying holdings of the ETFs in our coverage universe at ETF Channel, ...

Sum Up The Parts: FPX Could Be Worth $60
Fri, Feb 5, 8:14 AM ET, by ETF Channel

Looking at the underlying holdings of the ETFs in our coverage universe at ETF Channel, ...

Analysts See 27% Gains Ahead For IYG
Fri, Feb 5, 8:14 AM ET, by ETF Channel

Looking at the underlying holdings of the ETFs in our coverage universe at ETF Channel, ...

We Did The Math IWY Can Go To $61
Fri, Feb 5, 8:14 AM ET, by ETF Channel

Looking at the underlying holdings of the ETFs in our coverage universe at ETF Channel, ...

DVY, LMT, PM, KMB: Large Outflows Detected at ETF
Thu, Feb 4, 1:24 PM ET, by ETF Channel

Symbols mentioned in this story: DVY, LMT, PM, KMB Exchange traded funds (ETFs) trade just ...

Oil Services ETF Experiences Big Outflow
Thu, Feb 4, 1:24 PM ET, by ETF Channel

Symbols mentioned in this story: OIH, BHI, CAM, NOV Exchange traded funds (ETFs) trade just ...

IWM, STE, TYL, CUBE: ETF Outflow Alert
Thu, Feb 4, 1:24 PM ET, by ETF Channel

Symbols mentioned in this story: IWM, STE, TYL, CUBE Exchange traded funds (ETFs) trade just ...

FBT, TECH, QGEN, BIIB: Large Outflows Detected at ETF
Thu, Feb 4, 1:24 PM ET, by ETF Channel

Symbols mentioned in this story: FBT, TECH, QGEN, BIIB Exchange traded funds (ETFs) trade just ...

GDX Makes Bullish Cross Above Critical Moving Average
Thu, Feb 4, 1:24 PM ET, by ETF Channel

In trading on Thursday, shares of the Gold Miners ETF (GDX) crossed above their 200 ...

PowerShares High Yield Equity Dividend Achievers Portfolio (PEY) Shares Cross Above 200 DMA
Thu, Feb 4, 1:24 PM ET, by ETF Channel

In trading on Thursday, shares of the PowerShares High Yield Equity Dividend Achievers Portfolio ETF ...

Sum Up The Parts: IXN Could Be Worth $108
Thu, Feb 4, 10:44 AM ET, by ETF Channel

Looking at the underlying holdings of the ETFs in our coverage universe at ETF Channel, ...

Analysts Expect QLD To Hit $79
Thu, Feb 4, 10:44 AM ET, by ETF Channel

Looking at the underlying holdings of the ETFs in our coverage universe at ETF Channel, ...

Add Up The Pieces: DTN Could Be Worth $79
Thu, Feb 4, 10:44 AM ET, by ETF Channel

Looking at the underlying holdings of the ETFs in our coverage universe at ETF Channel, ...

  More articles:  1 2 3 4 5 6 7 next »

ABOUT US »   ADVERTISE »   CONTACT US »   TERMS OF USE & PRIVACY POLICY »

RAFI ETFs YTD: Boom Or Bust? | Self Directed Investor | Copyright © 2008 - 2016, All Rights Reserved

Any ideas and opinions presented in Self Directed Investor content are for informational and educational purposes only, and do not reflect the opinions of BNK Invest, Inc. or any of its affiliates, subsidiaries or partners. In no way should any content contained herein be interpreted to represent trading or investment advice. None of the information contained herein constitutes a recommendation that any particular security, portfolio, transaction, or investment strategy is suitable for any specific person. All site visitors agree that under no circumstances will BNK Invest, Inc,. its subsidiaries, partners, officers, employees, affiliates, or agents be held liable for any loss or damage caused by your reliance on information obtained. Read Full Disclaimer.

SDI is associated with: ValueForum.com -- a subscription-based online social networking forum of serious individual investors. | MarketNewsVideo.com -- videos appearing on SDI are produced by Market News Video. | TickerTech.com -- stock quote content appearing on SDI is at least 20 minutes delayed and is powered by Ticker Technologies. | GoldStockStrategist.com -- Edited by Scott V. Nystrom, PhD, Gold Stock Strategist provides analysis on gold mining companies.