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5 Smart Beta Funds That Are … Well, SMART

Smart beta funds are exploding in number and complexity, but only some of them will actually give you positive wiggle

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Smart Beta Funds: PowerShares FTSE RAFI US 1000 (PRF)

smart-beta-funds-prfWhen it comes to smart beta, Research Affiliates wrote the book and basically created the concept decades ago. As such, its RAFI line of indices is the standard-bearer with regards factor-based investing.

The PowerShares FTSE RAFI US 1000 (PRF) could be the hallmark of their efforts.

PRF holds more than a thousand U.S. stocks, but instead of weighting them according to market cap, it weights them according to series of various factors. The fund looks at fundamental measures of size, including book value, cash flow, sales and dividends. Each stock is scored, then is weighted based on that score.

What investors are left with is a value-style portfolio, with growth stocks only making up around 18% of its holdings. However, the fact that PRF does own some growth names as well as mid- and small-caps has helped the fund both the S&P 500 and traditional large-cap value funds over the past five years. Overall, PRF has managed to post a 25.5% annual total return during that time, vs. the S&P’s 20%.

Expenses are even lower than RSP at 0.38%.

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