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Is Invesco FTSE RAFI US 1500 SmallMid ETF (PRFZ) a Strong ETF Right Now?

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Making its debut on 09/20/2006, smart beta exchange traded fund Invesco FTSE RAFI US 1500 SmallMid ETF (PRFZ - Free Report) provides investors broad exposure to the Style Box - Small Cap Blend category of the market.

What Are Smart Beta ETFs?

The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.

A good option for investors who believe in market efficiency, market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns.

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.

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.

This area offers many different investment choices, such as simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies; however, not all of these strategies can deliver superior results.

Fund Sponsor & Index

The fund is sponsored by Invesco. It has amassed assets over $1.83 billion, making it one of the larger ETFs in the Style Box - Small Cap Blend. This particular fund seeks to match the performance of the FTSE RAFI US 1500 Small-Mid Index before fees and expenses.

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.

Annual operating expenses for PRFZ are 0.39%, which makes it on par with most peer products in the space.

It has a 12-month trailing dividend yield of 1.01%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. 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 Information Technology round out the top three.

Looking at individual holdings, Amc Entertainment Holdings Inc (AMC - Free Report) accounts for about 0.41% of total assets, followed by Herc Holdings Inc (HRI - Free Report) and Continental Resources Inc/ok (CLR - Free Report) .

Its top 10 holdings account for approximately 3.39% of PRFZ's total assets under management.

Performance and Risk

The ETF has lost about -8.51% and was up about 1.59% so far this year and in the past one year (as of 02/23/2022), respectively. PRFZ has traded between $169.59 and $201.01 during this last 52-week period.

The fund has a beta of 1.22 and standard deviation of 28.39% for the trailing three-year period, which makes PRFZ a medium risk choice in this particular space. With about 1459 holdings, it effectively diversifies company-specific risk.

Alternatives

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 - Free Report) tracks Russell 2000 Index and the iShares Core S&P SmallCap ETF (IJR - Free Report) tracks S&P SmallCap 600 Index. IShares Russell 2000 ETF has $59.01 billion in assets, iShares Core S&P SmallCap ETF has $68.77 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

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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