PRF’s stock portfolio
The PowerShares FTSE RAFI US 1000 Portfolio (PRF) tracks the investment result of the FTSE RAFI US 1000 Index. The index provider selects stocks based on four fundamental measures: book value, cash flow, sales, and dividends. PRF, as defined by its investment objective, invests almost 90% of its net assets in the components of the portfolio. PRF invests in a huge portfolio of securities. As of November 13, 2015, it has invested in 1,004 securities.
Fundamentally based ETFs
The above graph compares the performance of PRF with other smart beta funds such as the iShares MSCI USA Size Factor ETF (SIZE) and the iShares MSCI USA Value Factor ETF (VLUE) that derive their holdings through fundamental factors such as market capitalization and valuation multiples. As observed from the above graph, PRF has underperformed in comparison to SIZE and VLUE. Though PRF is less volatile than SIZE and VLUE, it has been on a downward trend since January 1, 2015.
Low risk, high return
The top five holdings of PRF include large-cap stocks such as JPMorgan Chase (JPM), Bank of America (BAC), Wells Fargo (WFC), Citigroup (C), and Berkshire Hathaway (BRK). Smart beta funds tracking indexes based on the fundamental measure are one of the highest traded smart beta funds since they have a relatively low risk with potential for capital appreciation.
In the next part, we’ll discuss how PRF has fared in the market.