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

XLB Crosses Above Key Moving Average Level
Fri, Oct 31, 3:54 PM ET, by ETF Channel

In trading on Friday, shares of the Materials Select Sector SPDR Fund ETF (XLB) crossed ...

SPDR Global Dow (DGT) Shares Cross Above 200 DMA
Fri, Oct 31, 3:54 PM ET, by ETF Channel

In trading on Friday, shares of the SPDR Global Dow ETF (DGT) crossed above their ...

Cimarex Energy Achieves #93 Analyst Rank, Surpassing PepsiCo
Fri, Oct 31, 12:24 PM ET, by ETF Channel

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

DFJ Makes Bullish Cross Above Critical Moving Average
Fri, Oct 31, 11:44 AM ET, by ETF Channel

In trading on Friday, shares of the Japan SmallCap Dividend ETF (DFJ) crossed above their ...

EFAV Crosses Above Key Moving Average Level
Fri, Oct 31, 11:44 AM ET, by ETF Channel

In trading on Friday, shares of the iShares MSCI EAFE Minimum Volatility ETF (EFAV) crossed ...

EXI Crosses Above Key Moving Average Level
Fri, Oct 31, 11:44 AM ET, by ETF Channel

In trading on Friday, shares of the iShares Global Industrials ETF (EXI) crossed above their ...

PHO Crosses Above Key Moving Average Level
Fri, Oct 31, 11:44 AM ET, by ETF Channel

In trading on Friday, shares of the PowerShares Water Resources Portfolio ETF (PHO) crossed above ...

TZA: Large Inflows Detected at ETF
Fri, Oct 31, 11:34 AM ET, by ETF Channel

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

FXR, ALK, VEC, UAL: ETF Outflow Alert
Fri, Oct 31, 11:34 AM ET, by ETF Channel

Symbols mentioned in this story: FXR, ALK, VEC, UAL Exchange traded funds (ETFs) trade just ...

EIDO: Large Inflows Detected at ETF
Fri, Oct 31, 11:24 AM ET, by ETF Channel

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

Shares of FXY Now Oversold
Fri, Oct 31, 11:14 AM ET, by ETF Channel

In trading on Friday, shares of the Japanese Yen Trust ETF (FXY) entered into oversold ...

EWV Crosses Critical Technical Indicator
Fri, Oct 31, 11:14 AM ET, by ETF Channel

In trading on Friday, shares of the Proshares UltraShort MSCI Japan ETF (EWV) entered into ...

iShares MSCI Japan Small-Cap (SCJ) Shares Cross Above 200 DMA
Fri, Oct 31, 11:14 AM ET, by ETF Channel

In trading on Friday, shares of the iShares MSCI Japan Small-Cap ETF (SCJ) crossed above ...

Permanent Breaks Below 200-Day Moving Average - Notable for PERM
Fri, Oct 31, 11:14 AM ET, by ETF Channel

In trading on Friday, shares of the Permanent ETF (PERM) crossed below their 200 day ...

PowerShares DB Gold Fund (DGL) Enters Oversold Territory
Fri, Oct 31, 11:14 AM ET, by ETF Channel

In trading on Friday, shares of the PowerShares DB Gold Fund ETF (DGL) entered into ...

KBE Makes Bullish Cross Above Critical Moving Average
Thu, Oct 30, 4:14 PM ET, by ETF Channel

In trading on Thursday, shares of the SPDR S&P Bank ETF (KBE) crossed above their ...

EEB Makes Bullish Cross Above Critical Moving Average
Thu, Oct 30, 4:14 PM ET, by ETF Channel

In trading on Thursday, shares of the Guggenheim BRIC ETF (EEB) crossed above their 200 ...

Bank and Brokerage (RKH) Shares Cross Above 200 DMA
Thu, Oct 30, 3:54 PM ET, by ETF Channel

In trading on Thursday, shares of the Bank and Brokerage ETF (RKH) crossed above their ...

Shares of SRS Now Oversold
Thu, Oct 30, 3:54 PM ET, by ETF Channel

In trading on Thursday, shares of the Proshares UltraShort Real Estate ETF (SRS) entered into ...

SLVP Crosses Critical Technical Indicator
Thu, Oct 30, 3:54 PM ET, by ETF Channel

In trading on Thursday, shares of the iShares MSCI Global Silver Miners ETF (SLVP) entered ...

IEMG Makes Bullish Cross Above Critical Moving Average
Thu, Oct 30, 3:54 PM ET, by ETF Channel

In trading on Thursday, shares of the iShares Core MSCI Emerging Markets ETF (IEMG) crossed ...

GDXJ Crowded With Sellers
Thu, Oct 30, 11:54 AM ET, by ETF Channel

In trading on Thursday, shares of the Junior Gold Miners ETF (GDXJ) entered into oversold ...

GDX Crosses Critical Technical Indicator
Thu, Oct 30, 11:54 AM ET, by ETF Channel

In trading on Thursday, shares of the Gold Miners ETF (GDX) entered into oversold territory, ...

EPU Crosses Critical Technical Indicator
Thu, Oct 30, 11:54 AM ET, by ETF Channel

In trading on Thursday, shares of the iShares MSCI All Peru Capped ETF (EPU) entered ...

ETFS Physical Silver Shares (SIVR) Enters Oversold Territory
Thu, Oct 30, 11:54 AM ET, by ETF Channel

In trading on Thursday, shares of the ETFS Physical Silver Shares ETF (SIVR) entered into ...

VXF, TWTR, AAL, TSLA: ETF Inflow Alert
Thu, Oct 30, 11:34 AM ET, by ETF Channel

Symbols mentioned in this story: VXF, TWTR, AAL, TSLA Exchange traded funds (ETFs) trade just ...

Consumer Discretionary Select Sector SPDR Fund Experiences Big Inflow
Thu, Oct 30, 11:34 AM ET, by ETF Channel

Symbols mentioned in this story: XLY, DIS, AMZN, MCD Exchange traded funds (ETFs) trade just ...

IWO, PBYI, TMH, ISIS: ETF Inflow Alert
Thu, Oct 30, 11:34 AM ET, by ETF Channel

Symbols mentioned in this story: IWO, PBYI, TMH, ISIS Exchange traded funds (ETFs) trade just ...

Energy Select Sector SPDR Fund Experiences Big Outflow
Thu, Oct 30, 11:34 AM ET, by ETF Channel

Symbols mentioned in this story: XLE, CVX, EOG, OXY Exchange traded funds (ETFs) trade just ...

IVV, AAPL, XOM, MSFT: ETF Inflow Alert
Thu, Oct 30, 11:34 AM ET, by ETF Channel

Symbols mentioned in this story: IVV, AAPL, XOM, MSFT Exchange traded funds (ETFs) trade just ...

IVW, JNJ, SLB, GOOGL: ETF Inflow Alert
Thu, Oct 30, 11:34 AM ET, by ETF Channel

Symbols mentioned in this story: IVW, JNJ, SLB, GOOGL Exchange traded funds (ETFs) trade just ...

SHY: Large Outflows Detected at ETF
Thu, Oct 30, 11:34 AM ET, by ETF Channel

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

Shares of DBP Now Oversold
Thu, Oct 30, 11:14 AM ET, by ETF Channel

In trading on Thursday, shares of the PowerShares DB Precious Metals Fund ETF (DBP) entered ...

Gold Explorers Getting Very Oversold
Thu, Oct 30, 11:14 AM ET, by ETF Channel

In trading on Thursday, shares of the Gold Explorers ETF (GLDX) entered into oversold territory, ...

BKF Makes Bullish Cross Above Critical Moving Average
Thu, Oct 30, 10:54 AM ET, by ETF Channel

In trading on Thursday, shares of the iShares MSCI BRIC ETF (BKF) crossed above their ...

SPDR S&P Telecom (XTL) Shares Cross Above 200 DMA
Thu, Oct 30, 10:54 AM ET, by ETF Channel

In trading on Thursday, shares of the SPDR S&P Telecom ETF (XTL) crossed above their ...

16.8% of XOP Holdings Seeing Recent Insider Buys
Thu, Oct 30, 10:14 AM ET, by ETF Channel

A look at the weighted underlying holdings of the SPDR S&P Oil & Gas Exploration ...

PX Named Top 25 SAFE Dividend Stock Increasing Payments For Decades
Thu, Oct 30, 9:24 AM ET, by ETF Channel

Praxair, Inc. (PX) has been named to the Dividend Channel ''S.A.F.E. ...

iShares Emerging Markets Infrastructure (EMIF) Shares Cross Above 200 DMA
Wed, Oct 29, 4:14 PM ET, by ETF Channel

In trading on Wednesday, shares of the iShares Emerging Markets Infrastructure ETF (EMIF) crossed above ...

CSJ Makes Notable Cross Below Critical Moving Average
Wed, Oct 29, 4:14 PM ET, by ETF Channel

In trading on Wednesday, shares of the iShares 1-3 Year Credit Bond ETF (CSJ) crossed ...

AIA Crosses Above Key Moving Average Level
Wed, Oct 29, 4:14 PM ET, by ETF Channel

In trading on Wednesday, shares of the iShares Asia 50 ETF (AIA) crossed above their ...

Daily Junior Gold Miners Index Bull 3x Shares (JNUG) Enters Oversold Territory
Wed, Oct 29, 4:14 PM ET, by ETF Channel

In trading on Wednesday, shares of the Daily Junior Gold Miners Index Bull 3x Shares ...

RING Crowded With Sellers
Wed, Oct 29, 4:14 PM ET, by ETF Channel

In trading on Wednesday, shares of the iShares MSCI Global Gold Miners ETF (RING) entered ...

SPDR S&P Regional Banking (KRE) Shares Cross Above 200 DMA
Wed, Oct 29, 4:14 PM ET, by ETF Channel

In trading on Wednesday, shares of the SPDR S&P Regional Banking ETF (KRE) crossed above ...

PRFZ Crosses Above Key Moving Average Level
Wed, Oct 29, 11:14 AM ET, by ETF Channel

In trading on Wednesday, shares of the PowerShares FTSE RAFI US 1500 Small-Mid Portfolio ETF ...

EMHY Crosses Above Key Moving Average Level
Wed, Oct 29, 11:14 AM ET, by ETF Channel

In trading on Wednesday, shares of the iShares Emerging Markets High Yield Bond ETF (EMHY) ...

PSCI Crosses Above Key Moving Average Level
Wed, Oct 29, 11:14 AM ET, by ETF Channel

In trading on Wednesday, shares of the PowerShares S&P SmallCap Industrials Portfolio ETF (PSCI) crossed ...

EGShares Emerging Markets Consumer (ECON) Shares Cross Above 200 DMA
Wed, Oct 29, 11:14 AM ET, by ETF Channel

In trading on Wednesday, shares of the EGShares Emerging Markets Consumer ETF (ECON) crossed above ...

PowerShares KBW Regional Bank Portfolio Breaks Above 200-Day Moving Average - Bullish for KBWR
Wed, Oct 29, 11:14 AM ET, by ETF Channel

In trading on Wednesday, shares of the PowerShares KBW Regional Bank Portfolio ETF (KBWR) crossed ...

EWQ: ETF Inflow Alert
Wed, Oct 29, 10:54 AM ET, by ETF Channel

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

Related videos | all videos »
  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 - 2014, 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 over 1000 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.