The Invesco RAFI US 1000 ETF (PRF) seeks to track the FTSE RAFI US 1000 Index, which measures the performance of the 1,000 largest U.S. companies selected and weighted by fundamental business metrics rather than market capitalization. This fundamentally-weighted equity ETF provides exposure to large-cap U.S. stocks using an alternative indexing methodology.
How It Works
PRF uses a fundamentally-weighted approach that selects and weights companies based on four fundamental measures: book value, cash flow, sales, and dividends over a five-year period. Unlike traditional market-cap weighting, this methodology assigns higher allocations to companies with stronger fundamental business metrics regardless of stock price performance. The fund rebalances annually in March to maintain alignment with fundamental weightings. Holdings typically include approximately 1,000 large-cap U.S. stocks with sector allocations that can differ significantly from market-cap weighted benchmarks.
Key Features
- Alternative to market-cap weighting that may reduce concentration in overvalued stocks and increase exposure to undervalued companies
- Fundamentally-weighted methodology historically shows value tilt, potentially outperforming during value stock cycles while underperforming growth periods
- Established track record since 2007 with systematic rebalancing that removes emotion and timing decisions from portfolio construction
Risks
- This ETF can underperform market-cap weighted indexes during growth stock rallies, as fundamental weighting typically reduces exposure to high-flying technology stocks
- Annual rebalancing may create higher portfolio turnover and transaction costs compared to pure market-cap weighted funds, potentially impacting returns
- Broad U.S. equity exposure means the fund will decline during market downturns, potentially losing 30-40% in severe bear markets like 2008-2009
Who Should Own This
Best suited for long-term investors with 5+ year time horizons seeking an alternative to traditional market-cap weighted large-cap exposure as a core holding (20-40% of equity allocation). Medium to high risk tolerance required due to equity volatility and potential style-based underperformance periods. Appeals to value-oriented investors who believe fundamental metrics better reflect company worth than market prices.