Investment strategies such as stock picking and bond investing are all in the red, so why not a fundamentally weighted indexed ETF?

Ron DeLegge for ETF Guide says fundamentally weighted ETFs try to beat the performance of a traditional index by selecting and weighting stocks according to various financial metrics such as earnings, dividends or book value. A traditional index such as the S&P 500 uses a market-cap weighted approach.

DeLegge points out that, so far, the performance has revealed a mixed bag: large-cap fundamental indexes are underperforming, while small- and mid-caps are slightly outperforming. Among sector funds, the performance also remains mixed.

When you choose a fundamental index there are two things to consider: 1) how it selects securities, and 2) how the securities are weighted.

Always be sure to understand what strategy your ETF follows. As we always say: know what you own.

Year-to-date, the S&P 500 is down 41.5%. In comparison:

• PowerShares FTSE RAFI Consumer Goods (PRFG), down 39.7% year-to-date

• PowerShares FTSE RAFI 1000 (PRF), down 44.3% year-to-date

In an effort to keep up with the competition, PowerShares announced late last week that they are cutting expense ratios on 11 ETFs that use Research Affiliates’ fundamental indexing approach, reports Index Universe.

The ETFs now have expense ratios capped at 0.60%, according to a company spokesperson. Those fees will be reduced to a uniform 0.39% on Nov. 1. Several other ETF providers have made similar cuts to their expense ratios this year, including Vanguard Group and XShares.

As consolidation becomes evident in the ETF industry, the pressure is on for smaller providers. A general rule of thumb in the industry is that for an ETF to break even, it needs to have at least $100 million in assets; some say it’s closer to $200 million, if marketing and operational costs are factored in.

The competition is great for investors, as they can expect the best products for the best prices.

PowerShares has a family of 140 funds and $12.21 billion in assets. The fundamental-weighted ETFs track indexes that use four measures to rank a company’s size: book value, cash flow, sales and dividends.

The 11 funds affected are:

• PowerShares FTSE RAFI US 1000 Portfolio (PRF)
• PowerShares FTSE RAFI US 1500 Small-Mid Portfolio (PRFZ)
• PowerShares FTSE RAFI Basic Materials Sector Portfolio (PRFM)
  
• PowerShares FTSE RAFI Consumer Goods Sector Portfolio (PRFG)
  
• PowerShares FTSE RAFI Consumer services Sector Portfolio (PRFS)
• PowerShares FTSE RAFI Energy Sector Portfolio (PRFE)
• PowerShares FTSE RAFI Financials Sector Portfolio (PRFF)
• PowerShares FTSE RAFI Health Care Sector Portfolio (PRFH)
  
• PowerShares FTSE RAFI Industrials Sector Portfolio (PRFN)
  
• PowerShares FTSE RAFI Telecom & Technology Sector Portfolio (PRFQ)
  
• PowerShares FTSE RAFI Utilities Sector Portfolio (PRFU)