This ETF Helped Start the Smart Beta Phenomenon

Now home to almost $4.6 billion in assets under management, making it one of the largest smart beta ETFs, PRF benchmarks to the FTSE RAFI US 1000 Index. “The Index is designed to track the performance of the largest US equities, selected based on the following four fundamental measures of firm size: book value, cash flow, sales and dividends. The 1,000 equities with the highest fundamental strength are weighted by their fundamental scores,” according to PowerShares.

When it debuted in 2005, PRF was seen as ground-breaking by some in the investment community while others criticized the notion of fundamental weighting. However, the ETF has earned its stripes. Over the past three years, PRF has outpaced the S&P 500 by 500 basis points. [Smart Beta Surge]

“As we stand here now, 10 years later, I think it’s interesting to look back because so much of the criticism at the outset was this is just a repackaged value index,” said Feyerer. “Well, guess what. We have 10 years now of live data and we have 10 years during which growth outperformed value. If that was true to the case, you’d expect the FTSE RAFI strategy to underperform when, in fact, the exact opposite has happened.”

As PRF has consistently outperformed rival cap-weighted funds, investors have progressively warmed to the ETF’s story. Over the past year, the ETF has added $823 million in new assets, good for the best inflows total among all PowerShares ETFs.

PowerShares issues several other ETFs that follow the FTSE RAFI methodology, including the $415.9 million PowerShares FTSE RAFI Emerging Markets Portfolio (NYSEArca: PXH) and PRF’s small- and mid-cap relative, the $1.1 billion PowerShares FTSE RAFI 1500 Small-Mid Portfolio (NYSEArca: PRFZ).