Designed to provide broad exposure to the Style Box - Small Cap Blend category of the market, the Invesco FTSE RAFI US 1500 Small-Mid ETF (PRFZ) is a smart beta exchange traded fund launched on 09/20/2006.
What Are Smart Beta ETFs?
Market cap weighted indexes were created to reflect the market, or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy.
Market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns, and are a good option for investors who believe in market efficiency.
But, there are some investors who would rather invest in smart beta funds; these funds track non-cap weighted strategies, and are a strong option for those who prefer choosing great stocks in order to beat the market.
Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.
Even though this space provides many choices to investors--think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting--not all have been able to deliver first-rate results.
Fund Sponsor & Index
Managed by Invesco, PRFZ has amassed assets over $2.75 billion, making it one of the larger ETFs in the Style Box - Small Cap Blend. Before fees and expenses, this particular fund seeks to match the performance of the FTSE RAFI US 1500 Small-Mid Index.
The FTSE RAFI US 1500 Small-Mid Index is comprised of approximately 1,500 U.S. stocks. The FTSE US 1500 Small-Mid Index is designed to track the performance of small and medium-sized U.S. equity stocks selected based on the following four fundamental measures of firm size: book value, income, cash flow and dividends.
Cost & Other Expenses
Expense ratios are an important factor in the return of an ETF and in the long-term, cheaper funds can significantly outperform their more expensive cousins, other things remaining the same.
Operating expenses on an annual basis are 0.39% for this ETF, which makes it on par with most peer products in the space.
It has a 12-month trailing dividend yield of 1.10%.
Sector Exposure and Top Holdings
Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.
For PRFZ, it has heaviest allocation in the Financials sector --about 20.80% of the portfolio --while Industrials and Consumer Discretionary round out the top three.
Taking into account individual holdings, Carvana Co (CVNA) accounts for about 0.55% of the fund's total assets, followed by Commscope Holding Co Inc (COMM) and Applovin Corp (APP).
Its top 10 holdings account for approximately 3.67% of PRFZ's total assets under management.
Performance and Risk
The ETF has added about 21.19% so far this year and was up about 35.62% in the last one year (as of 11/27/2024). In the past 52-week period, it has traded between $33.39 and $45.39.
PRFZ has a beta of 1.17 and standard deviation of 21.82% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 1460 holdings, it effectively diversifies company-specific risk.
Alternatives
Invesco FTSE RAFI US 1500 Small-Mid ETF is a reasonable option for investors seeking to outperform the Style Box - Small Cap Blend segment of the market. However, there are other ETFs in the space which investors could consider.
IShares Russell 2000 ETF (IWM) tracks Russell 2000 Index and the iShares Core S&P Small-Cap ETF (IJR) tracks S&P SmallCap 600 Index. IShares Russell 2000 ETF has $79.47 billion in assets, iShares Core S&P Small-Cap ETF has $94.47 billion. IWM has an expense ratio of 0.19% and IJR charges 0.06%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Style Box - Small Cap Blend.
Bottom Line
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Get it free >>Invesco FTSE RAFI US 1500 Small-Mid ETF (PRFZ): ETF Research Reports
AppLovin Corporation (APP) : Free Stock Analysis Report
iShares Russell 2000 ETF (IWM): ETF Research Reports
CommScope Holding Company, Inc. (COMM) : Free Stock Analysis Report
iShares Core S&P Small-Cap ETF (IJR): ETF Research Reports
Carvana Co. (CVNA) : Free Stock Analysis Report
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