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

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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?

For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader market or a particular market segment.

Market cap weighted indexes work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.

On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as 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

The fund is managed by Invesco, and has been able to amass over $1.95 billion, which makes it one of the larger ETFs in the Style Box - Small Cap Blend. PRFZ, before fees and expenses, 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

When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.

With on par with most peer products in the space, this ETF has annual operating expenses of 0.39%.

It has a 12-month trailing dividend yield of 1.31%.

Sector Exposure and Top Holdings

While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Financials sector - about 20.20% of the portfolio. Industrials and Information Technology round out the top three.

When you look at individual holdings, Continental Resources Inc/ok (CLR) accounts for about 0.52% of the fund's total assets, followed by Centennial Resource Development Inc/de (CDEV) and Matador Resources Co (MTDR).

Its top 10 holdings account for approximately 3.89% of PRFZ's total assets under management.

Performance and Risk

So far this year, PRFZ has lost about -20.10%, and is down about -16.87% in the last one year (as of 07/01/2022). During this past 52-week period, the fund has traded between $149.12 and $201.01.

The fund has a beta of 1.17 and standard deviation of 29.49% for the trailing three-year period, which makes PRFZ a medium risk choice in this particular space. With about 1438 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) tracks Russell 2000 Index and the iShares Core S&P SmallCap ETF (IJR) tracks S&P SmallCap 600 Index. IShares Russell 2000 ETF has $50.67 billion in assets, iShares Core S&P SmallCap ETF has $59.93 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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Invesco FTSE RAFI US 1500 SmallMid ETF (PRFZ): ETF Research Reports
 
Continental Resources, Inc. (CLR) : Free Stock Analysis Report
 
iShares Russell 2000 ETF (IWM): ETF Research Reports
 
Matador Resources Company (MTDR) : 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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Zacks Investment Research

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