Broad markets have done quite well so far in 2013, as U.S.
stocks have led an asset price recovery for much of the year. And
with a low likelihood of a QE taper in the near term, we could
definitely see more bullishness ahead too (see
3 Top Ranked ETFs from Red Hot Sectors
Yet while a broad approach to the market is certainly a low risk
and easy way to gain exposure to this trend, there are actually
several funds that follow 'fundamental' indexes that may actually
be better picks.
These funds seek to break the link between prices (and thus market
capitalization) and security weight, and instead look to focus on
other factors be it revenues, dividends, or a combination of items
such as in the 'RAFI' model.
RAFI in Focus
The RAFI approach looks to take four measures of a firm's size in
order to determine its weight; book value, dividends, cash flow and
sales. This technique can lead to big differences in weights when
comparing traditional cap-weighted products to RAFI-based funds,
but it can also lead to outperformance too.
Investors have definitely seen this with two such RAFI funds, the
PowerShares FTSE RAFI US 1000 (
, and the
PowerShares FTSE RAFI 1500 Small-Mid ETF (
, as these have thoroughly crushed comparable funds over long time
periods. In fact, PRF has beaten
137.1% to 102.4% over the past five years, while PRFZ has trounced
over the same time frame: 181.8% to 125.1% (see
the Top ETFs here
There is more than outperformance for investors to be aware
of for these products, as often times volume and assets are a
bit lighter here. However, we have discussed some of these key
aspects in our short video below, make sure to watch!
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ISHARS-R 2000 (IWM): ETF Research Reports
PWRSH-FTSE RAFI (PRF): ETF Research Reports
PWRSH-F/R US150 (PRFZ): ETF Research Reports
SPDR-SP 500 TR (SPY): ETF Research Reports
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