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Is Invesco FTSE RAFI Emerging Markets ETF (PXH) a Strong ETF Right Now?

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Designed to provide broad exposure to the Broad Developed Market ETFs category of the market, the Invesco FTSE RAFI Emerging Markets ETF (PXH - Free Report) is a smart beta exchange traded fund launched on 09/27/2007.

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.

However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.

These indexes attempt to select stocks that have better chances of risk-return performance, based on certain fundamental characteristics or a combination of such characteristics.

The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.

Fund Sponsor & Index

Because the fund has amassed over $1.26 billion, this makes it one of the larger ETFs in the Broad Developed Market ETFs. PXH is managed by Invesco. This particular fund, before fees and expenses, seeks to match the performance of the FTSE RAFI Emerging Markets Index.

The FTSE RAFI Emerging Index is designed to track the performance of the emerging market stocks with the highest ranking cumulative score, selected from the constituents of the FTSE Emerging Large/Mid Cap Index.

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 0.49% for PXH, making it on par with most peer products in the space.

It's 12-month trailing dividend yield comes in at 4.79%.

Sector Exposure and Top Holdings

Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it's still important for investors to research a fund's holdings.

When you look at individual holdings, Taiwan Semiconductor Manufacturing Co Ltd accounts for about 4.87% of the fund's total assets, followed by Alibaba Group Holding Ltd and Petroleo Brasileiro Sa (PETR4).

Its top 10 holdings account for approximately 24.02% of PXH's total assets under management.

Performance and Risk

The ETF has added roughly 8.25% and was up about 8.51% so far this year and in the past one year (as of 09/15/2023), respectively. PXH has traded between $15.83 and $19.82 during this last 52-week period.

The ETF has a beta of 0.75 and standard deviation of 17.73% for the trailing three-year period, making it a medium risk choice in the space. With about 414 holdings, it effectively diversifies company-specific risk.

Alternatives

Invesco FTSE RAFI Emerging Markets ETF is a reasonable option for investors seeking to outperform the Broad Developed Market ETFs segment of the market. However, there are other ETFs in the space which investors could consider.

IShares Core MSCI Emerging Markets ETF (IEMG - Free Report) tracks MSCI Emerging Markets Investable Market Index and the Vanguard FTSE Emerging Markets ETF (VWO - Free Report) tracks FTSE Emerging Markets All Cap China A Inclusion Index. IShares Core MSCI Emerging Markets ETF has $71.49 billion in assets, Vanguard FTSE Emerging Markets ETF has $73.09 billion. IEMG has an expense ratio of 0.09% and VWO charges 0.08%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Broad Developed Market ETFs.

Bottom Line

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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