Value in Disguise
Fundamental weighting doesn't explicitly target value stocks, but it can deliver similar exposure to traditional value index funds.
Value investing is simple in principle: Buy cheap stocks that are underpriced by the market. How to choose a portfolio that best deploys this straightforward logic is not as clear, as there are different, and often non-obvious, ways to channel value.
Invesco FTSE RAFI US 1000 ETF (PRF), which weights its holdings by fundamental measures of size, is an unconventional value strategy. Although it’s not obvious upon first glance, a careful look at this approach reveals that it invites a similar degree of value exposure as conventional market-cap-weighted funds that screen for value stocks. This fund illustrates that the paths to value can be nebulous and that non-cap-weighted funds are often value strategies in disguise.
Ryan Jackson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.