Is Invesco FTSE RAFI US 1500 SmallMid ETF (PRFZ) a Strong ETF Right Now?
Designed to provide broad exposure to the Style Box – Small Cap Blend category of the market, the Invesco FTSE RAFI US 1500 SmallMid 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.
Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.
There are some investors, though, who think it’s possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.
Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other such characteristics.
Methodologies like equal-weighting, one of the simplest options out there, fundamental weighting, and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.
Fund Sponsor & Index
The fund is managed by Invesco. PRFZ has been able to amass assets over $2.05 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 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
Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive cousins if all other fundamentals are the same.
With on par with most peer products in the space, this ETF has annual operating expenses of 0.39%.
It’s 12-month trailing dividend yield comes in at 0.81%.
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 19.80% of the portfolio –while Industrials and Consumer Discretionary round out the top three.
Taking into account individual holdings, Amc Entertainment Holdings Inc (AMC) accounts for about 0.59% of the fund’s total assets, followed by Centennial Resource Development Inc/de (CDEV) and Express Inc (EXPR).
Its top 10 holdings account for approximately 3.06% of PRFZ’s total assets under management.
Performance and Risk
Year-to-date, the Invesco FTSE RAFI US 1500 SmallMid ETF return is roughly 28.39% so far, and was up about 51.78% over the last 12 months (as of 10/21/2021). PRFZ has traded between $119.48 and $191.37 in this past 52-week period.
The ETF has a beta of 1.25 and standard deviation of 28.49% for the trailing three-year period, making it a medium risk choice in the space. With about 1489 holdings, it effectively diversifies company-specific risk.
Invesco FTSE RAFI US 1500 SmallMid 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 SmallCap ETF (IJR) tracks S&P SmallCap 600 Index. IShares Russell 2000 ETF has $69.39 billion in assets, iShares Core S&P SmallCap ETF has $71.41 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.
To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.
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Invesco FTSE RAFI US 1500 SmallMid ETF (PRFZ): ETF Research Reports
Express, Inc. (EXPR) : Free Stock Analysis Report
iShares Russell 2000 ETF (IWM): ETF Research Reports
AMC Entertainment Holdings, Inc. (AMC) : Free Stock Analysis Report
iShares Core S&P SmallCap ETF (IJR): ETF Research Reports
Centennial Resource Development (CDEV) : Free Stock Analysis Report
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