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

Coach Takes Over #128 Spot From Ball
Fri, Dec 9, 11:55 AM ET, by ETF Channel

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

PCY: ETF Outflow Alert
Fri, Dec 9, 11:14 AM ET, by ETF Channel

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

URA Makes Bullish Cross Above Critical Moving Average
Fri, Dec 9, 11:14 AM ET, by ETF Channel

In trading on Friday, shares of the Uranium ETF (URA) crossed above their 200 day ...

El Pollo Loco Holdings Reaches Analyst Target Price
Fri, Dec 9, 10:14 AM ET, by ETF Channel

In recent trading, shares of El Pollo Loco Holdings Inc (LOCO) have crossed above the ...

WSTC Crosses Above Average Analyst Target
Fri, Dec 9, 10:14 AM ET, by ETF Channel

In recent trading, shares of West Corp. (WSTC) have crossed above the average analyst 12-month ...

Synergy Resources Reaches Analyst Target Price
Fri, Dec 9, 10:14 AM ET, by ETF Channel

In recent trading, shares of Synergy Resources Corp (SYRG) have crossed above the average analyst ...

RUTH Crosses Above Average Analyst Target
Fri, Dec 9, 10:14 AM ET, by ETF Channel

In recent trading, shares of Ruth's Hospitality Group Inc (RUTH) have crossed above the average ...

MBUU Crosses Above Average Analyst Target
Fri, Dec 9, 9:14 AM ET, by ETF Channel

In recent trading, shares of Malibu Boats Inc (MBUU) have crossed above the average analyst ...

Chefs' Warehouse Reaches Analyst Target Price
Fri, Dec 9, 9:14 AM ET, by ETF Channel

In recent trading, shares of Chefs' Warehouse Inc (CHEF) have crossed above the average analyst ...

DENN Crosses Above Average Analyst Target
Fri, Dec 9, 9:14 AM ET, by ETF Channel

In recent trading, shares of Denny's Corp (DENN) have crossed above the average analyst 12-month ...

ASNA Crosses Above Average Analyst Target
Fri, Dec 9, 9:14 AM ET, by ETF Channel

In recent trading, shares of Ascena Retail Group Inc (ASNA) have crossed above the average ...

Abercrombie & Fitch Reaches Analyst Target Price
Fri, Dec 9, 9:14 AM ET, by ETF Channel

In recent trading, shares of Abercrombie & Fitch Co. (ANF) have crossed above the average ...

Plantronics Reaches Analyst Target Price
Fri, Dec 9, 9:14 AM ET, by ETF Channel

In recent trading, shares of Plantronics, Inc. (PLT) have crossed above the average analyst 12-month ...

WNEB Crosses Above Average Analyst Target
Fri, Dec 9, 9:14 AM ET, by ETF Channel

In recent trading, shares of Western New England Bancorp Inc (WNEB) have crossed above the ...

ZELTIQ Aesthetics Reaches Analyst Target Price
Fri, Dec 9, 9:14 AM ET, by ETF Channel

In recent trading, shares of ZELTIQ Aesthetics Inc. (ZLTQ) have crossed above the average analyst ...

Littelfuse Reaches Analyst Target Price
Fri, Dec 9, 9:14 AM ET, by ETF Channel

In recent trading, shares of Littelfuse, Inc. (LFUS) have crossed above the average analyst 12-month ...

Chevron a Top 25 Dividend Giant With 3.76% Yield (CVX)
Fri, Dec 9, 8:54 AM ET, by ETF Channel

Chevron Corporation (CVX) has been named as a Top 25 ''Dividend Giant'' by ETF Channel, ...

DGRE Crosses Above Key Moving Average Level
Thu, Dec 8, 4:14 PM ET, by ETF Channel

In trading on Thursday, shares of the WisdomTree Emerging Markets Quality Dividend Growth Fund ETF ...

PWB, VMW, APH, AMAT: Large Outflows Detected at ETF
Thu, Dec 8, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: PWB, VMW, APH, AMAT Exchange traded funds (ETFs) trade just ...

FDN, YHOO, EBAY, EXPE: ETF Outflow Alert
Thu, Dec 8, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: FDN, YHOO, EBAY, EXPE Exchange traded funds (ETFs) trade just ...

USDU: ETF Outflow Alert
Thu, Dec 8, 10:54 AM ET, by ETF Channel

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

SPHB, CHK, WMB, MRO: Large Outflows Detected at ETF
Thu, Dec 8, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: SPHB, CHK, WMB, MRO Exchange traded funds (ETFs) trade just ...

XBI, IONS, TSRO, EXEL: Large Outflows Detected at ETF
Thu, Dec 8, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: XBI, IONS, TSRO, EXEL Exchange traded funds (ETFs) trade just ...

IVE, USB, TWX, AIG: ETF Inflow Alert
Thu, Dec 8, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: IVE, USB, TWX, AIG Exchange traded funds (ETFs) trade just ...

12.8% of JXI Holdings Seeing Recent Insider Buys
Thu, Dec 8, 10:14 AM ET, by ETF Channel

A look at the weighted underlying holdings of the iShares Global Utilities ETF (JXI) shows ...

IWF's Underlying Holdings Could Mean 11% Gain Potential
Thu, Dec 8, 9:24 AM ET, by ETF Channel

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

The SSW Paradox: Analysts Bearish But Forecast 37.57% Gains
Thu, Dec 8, 9:24 AM ET, by ETF Channel

Analyst ratings can sometimes be complicated, and we here at ETF Channel have noticed a ...

The TSLA Paradox: Analysts Bearish But Forecast 22.36% Gains
Thu, Dec 8, 9:24 AM ET, by ETF Channel

Analyst ratings can sometimes be complicated, and we here at ETF Channel have noticed a ...

First Foundation Reaches Analyst Target Price
Thu, Dec 8, 9:24 AM ET, by ETF Channel

In recent trading, shares of First Foundation Inc (FFWM) have crossed above the average analyst ...

Imperial Oil Reaches Analyst Target Price
Thu, Dec 8, 9:24 AM ET, by ETF Channel

In recent trading, shares of Imperial Oil Ltd (IMO) have crossed above the average analyst ...

Ternium Reaches Analyst Target Price
Thu, Dec 8, 9:14 AM ET, by ETF Channel

In recent trading, shares of Ternium S A (TX) have crossed above the average analyst ...

SAVE Crosses Above Average Analyst Target
Thu, Dec 8, 9:14 AM ET, by ETF Channel

In recent trading, shares of Spirit Airlines Inc (SAVE) have crossed above the average analyst ...

First Potomac Realty Trust Reaches Analyst Target Price
Thu, Dec 8, 9:14 AM ET, by ETF Channel

In recent trading, shares of First Potomac Realty Trust (FPO) have crossed above the average ...

CAVM Crosses Above Average Analyst Target
Thu, Dec 8, 9:14 AM ET, by ETF Channel

In recent trading, shares of Cavium Inc (CAVM) have crossed above the average analyst 12-month ...

TEN Crosses Above Average Analyst Target
Thu, Dec 8, 9:14 AM ET, by ETF Channel

In recent trading, shares of Tenneco Inc (TEN) have crossed above the average analyst 12-month ...

Lear Reaches Analyst Target Price
Thu, Dec 8, 9:14 AM ET, by ETF Channel

In recent trading, shares of Lear Corp. (LEA) have crossed above the average analyst 12-month ...

Why AvalonBay Communities is a Top Socially Responsible Dividend Stock (AVB)
Thu, Dec 8, 8:14 AM ET, by ETF Channel

AvalonBay Communities, Inc. (AVB) has been named a Top Socially Responsible Dividend Stock by Dividend ...

United Bankshares a Top Ranked SAFE Dividend Stock With 2.8% Yield (UBSI)
Thu, Dec 8, 8:14 AM ET, by ETF Channel

United Bankshares Inc (UBSI) has been named to the Dividend Channel ''S.A.F.E. 25'' list, signifying ...

XOM a Top 25 Dividend Giant With $19.75B Held By ETFs
Thu, Dec 8, 8:14 AM ET, by ETF Channel

Exxon Mobil Corp (XOM) has been named as a Top 25 ''Dividend Giant'' by ETF ...

Daily S&P 500 Bear 3x Shares (SPXS) Enters Oversold Territory
Wed, Dec 7, 4:14 PM ET, by ETF Channel

In trading on Wednesday, shares of the Daily S&P 500 Bear 3x Shares ETF (SPXS) ...

SPXU Crosses Critical Technical Indicator
Wed, Dec 7, 4:14 PM ET, by ETF Channel

In trading on Wednesday, shares of the ProShares UltraPro Short S&P500 ETF (SPXU) entered into ...

IEV Crosses Above Key Moving Average Level
Wed, Dec 7, 4:14 PM ET, by ETF Channel

In trading on Wednesday, shares of the iShares Europe ETF (IEV) crossed above their 200 ...

EWP Makes Bullish Cross Above Critical Moving Average
Wed, Dec 7, 4:14 PM ET, by ETF Channel

In trading on Wednesday, shares of the iShares MSCI Spain Capped ETF (EWP) crossed above ...

PIN Makes Bullish Cross Above Critical Moving Average
Wed, Dec 7, 4:14 PM ET, by ETF Channel

In trading on Wednesday, shares of the PowerShares India Portfolio ETF (PIN) crossed above their ...

iShares MSCI Sweden Breaks Above 200-Day Moving Average - Bullish for EWD
Wed, Dec 7, 4:14 PM ET, by ETF Channel

In trading on Wednesday, shares of the iShares MSCI Sweden ETF (EWD) crossed above their ...

IEUR Crosses Above Key Moving Average Level
Wed, Dec 7, 4:14 PM ET, by ETF Channel

In trading on Wednesday, shares of the iShares Core MSCI Europe ETF (IEUR) crossed above ...

MDIV Makes Bullish Cross Above Critical Moving Average
Wed, Dec 7, 11:14 AM ET, by ETF Channel

In trading on Wednesday, shares of the Multi-Asset Diversified Income Index Fund ETF (MDIV) crossed ...

XHB, WSM, TOL, BBBY: Large Outflows Detected at ETF
Wed, Dec 7, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: XHB, WSM, TOL, BBBY Exchange traded funds (ETFs) trade just ...

First Trust Tactical High Yield (HYLS) Shares Cross Above 200 DMA
Wed, Dec 7, 11:14 AM ET, by ETF Channel

In trading on Wednesday, shares of the First Trust Tactical High Yield ETF (HYLS) crossed ...

Notable ETF Outflow Detected - IWM, AMD, MSCC, CW
Wed, Dec 7, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: IWM, AMD, MSCC, CW Exchange traded funds (ETFs) trade just ...

  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.