Making its debut on 09/20/2006, smart beta exchange traded fund Invesco RAFI US 1500 Small-Mid ETF (PRFZ) provides investors broad exposure to the Style Box - Small Cap Blend category of the market.
What Are Smart Beta ETFs?
Market cap weighted indexes were created to reflect the market, or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy.
Market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns, and are a good option for investors who believe in market efficiency.
There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.
These indexes attempt to select stocks that have better chances of risk-return performance, based on certain fundamental characteristics or a combination of such characteristics.
While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.
Fund Sponsor & Index
The fund is managed by Invesco. PRFZ has been able to amass assets over $2.37 billion, making it one of the larger ETFs in the Style Box - Small Cap Blend. This particular fund seeks to match the performance of the FTSE RAFI US 1500 Small-Mid Index before fees and expenses.
The FTSE RAFI US 1500 Small-Mid Index is comprised of approximately 1,500 U.S. stocks. The FTSE US 1500 Small-Mid Index is designed to track the performance of small and medium-sized U.S. equity stocks selected based on the following four fundamental measures of firm size: book value, income, cash flow and dividends.
Cost & Other Expenses
Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive cousins if all other fundamentals are the same.
Operating expenses on an annual basis are 0.39% for PRFZ, making it on par with most peer products in the space.
PRFZ's 12-month trailing dividend yield is 1.46%.
Sector Exposure and Top Holdings
While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.
PRFZ's heaviest allocation is in the Financials sector, which is about 19.20% of the portfolio. Its Industrials and Consumer Discretionary round out the top three.
When you look at individual holdings, Applovin Corp (APP) accounts for about 0.79% of the fund's total assets, followed by Brinker International Inc (EAT) and Carvana Co (CVNA).
Its top 10 holdings account for approximately 4.84% of PRFZ's total assets under management.
Performance and Risk
The ETF has lost about -7.47% so far this year and is up about 1.81% in the last one year (as of 04/03/2025). In the past 52-week period, it has traded between $36.18 and $45.39.
The ETF has a beta of 1.10 and standard deviation of 21.38% for the trailing three-year period, making it a medium risk choice in the space. With about 1428 holdings, it effectively diversifies company-specific risk.
Alternatives
Invesco RAFI US 1500 Small-Mid ETF is a reasonable option for investors seeking to outperform the Style Box - Small Cap Blend segment of the market. However, there are other ETFs in the space which investors could consider.
IShares Russell 2000 ETF (IWM) tracks Russell 2000 Index and the iShares Core S&P Small-Cap ETF (IJR) tracks S&P SmallCap 600 Index. IShares Russell 2000 ETF has $64.81 billion in assets, iShares Core S&P Small-Cap ETF has $79.63 billion. IWM has an expense ratio of 0.19% and IJR charges 0.06%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Style Box - Small Cap Blend.
Bottom Line
To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.
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Invesco RAFI US 1500 Small-Mid ETF (PRFZ): ETF Research Reports Brinker International, Inc. (EAT): Free Stock Analysis Report AppLovin Corporation (APP): Free Stock Analysis Report iShares Russell 2000 ETF (IWM): ETF Research Reports iShares Core S&P Small-Cap ETF (IJR): ETF Research Reports Carvana Co. (CVNA): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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