PowerShares FTSE RAFI US 1000 (ETF) (AMEX:PRF)
Exchange traded funds.
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Fundamentally-weighted index should be a tortoise-style overachiever for the long-term.
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A "fundamentally" different kind of index. It weighs the stocks in it's index according to fundamental values, such as sales, cash flow, book value and dividends. Over it's short lifespan (5 years) it has slightly beat the S&P. I am not looking to this pick to be my next blockbuster pick, but it should help my accuracy and give me a few points over time. The current point leader for this pick, athittle, has held it for a year and a half and has made 24 points off of it. That's just consistency, not flash.
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A fundamentally weighted US large-cap index should, in theory, outperform a capitalization weighted index (S&P 500).
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so what's new?
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Doing a little research to see if fundamental indexing is indeed better than traditional.
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This isn't your typical index. Instead of a traditional market cap based index, like the S&P 500, which forces the index to be overweight on higher priced stocks and underweight on value plays, the RAFI index comprises its holdings based on four fundamental measurements: book value, income, sales and dividends.
Historical backtracking of the thesis behind the RAFI index shows it beating the S&P by about 2% annually going back to 1962.
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ETF based on fundementals. Beating S&P 500
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Unlike typical indices, PRF weights stocks based on four fundamental measures: book value, income, sales, and dividends.
Typical indices weight on market cap alone, which means they buy more of the higher priced stocks, and less of the lower priced stocks. This is counter-productive for obvious reasons.
PRF puts more money into more valuable companies, instead of more expensive companies. Because of this, I believe PRF will consitently outperform the S&P.
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