Fundamentally-weighted RAFI indices, for example, back the PowerShares FTSE RAFI 1000 Portfolio (NYSEArca: PRF) which has gained $1.7 billion in assets.
“In a 2010 paper, Rob Arnott and Shane Shepherd of Research Affiliates, the promoters of fundamental indexation, showed that the FTSE RAFI Emerging Markets index had outperformed the capitalization-weighted FTSE Emerging Markets index by a huge nine percentage points per year between 1994 and 2009, without greatly increasing volatility,” Chris Heaton wrote for Index Universe.
Basically, it boils down to investors knowing what their ETF is holding. “Investors should know what’s inside their portfolio and how holdings are weighted,” Todd Rosenbluth of S&P Capital, said in Financial Advisor Magazine. “What has happened with Apple is a perfect example of the differences in indexes.”
Tisha Guerrero contributed to this article.
Story updated to correct Schwab fundamental index funds and ETF filings.