The outperformance, though, may be attributed to the way the PowerShares ETF was constructed. Taking a closer look at PRF, RAFI places emphasizes value stocks and provides smaller companies a larger weight. [An Outperforming ‘Smart-Beta’ ETF with a Value Tilt]
Additionally, the ETF only has a 0.39% expense ratio, compared to the average 1.19% expense ratio of large-cap-value funds, and the ETF cuts down on costs with low turnovers. According to the Center for Retirement Research at Boston College, the average mutual fund loses 0.66% of performance a year due to trading costs. [JPMorgan Eyes ‘Smart-Beta’ Developed Global ETF]
For more information on smart-beta ETFs, visit our indexing category.
Max Chen contributed to this article.