ETF Fundamental Indexing

PowerShares has yet another new exchange traded fund that began trading today.  The PowerShares FTSE RAFI US 1000 Portfolio (PRF) is based on fundamental indexing.

Traditional benchmarks weigh companies based on their market cap.  However, Robert Arnott, chairman of Research Affiliates, does not agree with this weighting.  He believes it exposes investors to overvalued companies.  Instead, using fundamental factors (sales, dividends, cash flow, etc) is a better approach to weighting an index.

This is exactly what PowerShares is focusing on with this new ETF.  PRF tracks the performance of top US based companies by looking at their fundamental factors.