While traditional ETFs are linked to market-cap weighted indices, the Invesco PowerShares FTSE RAFI range is based on fundamental indices.
Fundamental indices select and weight companies according to four fundamental factors: dividend, cash flow, sales and book value, with the objective of avoiding market inefficiency.
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| THE PROBLEM | THE SOLUTION |
|---|---|
| Market-cap weighted indices | Fundamentally weighted indices |
| Use outdated research technology. | Provide access to modern fundamentals-based equity indices |
| Use an old school approach of overweighting overpriced stocks and underweighting under-priced stocks. | Seek to avoid overweighting overvalued stocks – a potential shortcoming with market-capitalisation weighted indices. |
| Incorporate market speculation. | Performance may be less influenced by market ‘bubbles’. |
| Display substantial growth bias. | Are designed to identify the fair value of each company. |
| Do not fairly reflect the market. | Utilise fundamental variables that do not depend on the fluctuations of market valuation. |
FTSE Group has partenered with Research Affiliate to create innovative FTSE RAFI Index Series.
One of the world’s largest independent investment management organisations, Invesco PowerShares Capital Management LLC is a a world leader in the ETF industry.