2024-01-12 16:12:28 ET
Summary
- Invesco FTSE RAFI US 1000 ETF invests in about 1000 large companies based on an original metric of company size.
- It is better diversified across sectors and holdings than the Russell 1000 Index.
- The PRF ETF shows attractive valuation and quality, but neither past performance nor trading intensity justify its higher fee relative to peers.
This article series aims at evaluating ETFs (exchange-traded funds) regarding past performance and portfolio metrics. Reviews with updated data are posted when necessary.
PRF strategy and portfolio
Invesco FTSE RAFI US 1000 ETF ( PRF ) started investing operations on 12/19/2005 and tracks the FTSE RAFI US 1000 Index. It has 1008 holdings, a dividend yield of 2.06%, and a total expense ratio of 0.39%.
As described in the prospectus by Invesco , the underlying index includes the largest U.S. companies based on four fundamental measures of firm size: book value, cash flow, sales, and dividends. It is composed of approximately 1,000 common stocks. This definition of company size offers an alternative to usual market-capitalization weighted funds. In the most recent fiscal year, the portfolio turnover rate was 9%, which is very low.
This article will use as a benchmark the float-adjusted capitalization-weighted index Russell 1000, represented by iShares Russell 1000 ETF ( IWB ).
The fund is almost exclusively invested in U.S.-based companies (about 99% of asset value), mostly in large and mega caps (about 66% of asset value). The heaviest sector is financials (20.4%), followed by technology (14.7%) and healthcare (12.2%). Other sectors are below 10%. Compared to the Russell 1000, PRF massively underweights technology and overweights mostly financials, energy, and utilities. It shows a better diversification across sectors than the benchmark.
The portfolio is also better diversified across holdings. The top 10 issuers, listed below, represent 20.3% of asset value (vs. 29.6% for IWB) and the largest name weighs 2.8% (vs. 6.5% for IWB). Risks related to individual companies are significantly lower than in the benchmark. In this calculation and in the table below, the two share series of Alphabet Inc. ( GOOG , GOOGL ) have been grouped together.
Ticker | Name | Weight (%) | EPS growth % TTM | P/E TTM | P/E fwd | Yield % |
Berkshire Hathaway, Inc. | 2.81 | 4495.00 | 10.33 | 20.82 | 0 | |
Microsoft Corporation | 2.59 | 11.28 | 37.25 | 34.25 | 0.78 | |
Apple Inc. | 2.37 | 0.45 | 30.28 | 28.32 | 0.52 | |
GOOG, GOOGL | Alphabet, Inc. | 2.26 | 3.56 | 27.24 | 24.75 | 0 |
Amazon.com, Inc. | 2.12 | 75.88 | 81.02 | 57.77 | 0 | |
JPMorgan Chase & Co. | 2.08 | 41.43 | 10.17 | 10.31 | 2.47 | |
Meta Platforms, Inc. | 1.73 | 7.92 | 32.63 | 25.72 | 0 | |
Exxon Mobil Corporation | 1.55 | -18.05 | 9.81 | 10.67 | 3.85 | |
Intel Corporation | 1.52 | -112.39 | N/A | 50.65 | 1.05 | |
Verizon Communications Inc. | 1.23 | 7.88 | 7.64 | 8.05 | 7.02 |
Fundamentals
PRF is significantly cheaper than IWB regarding valuation metrics, as reported in the next table. The difference in aggregate earnings growth is not really significant.
PRF | IWB | |
P/E TTM | 15.41 | 21.94 |
Price/Book | 2.15 | 3.8 |
Price/Sales | 1.2 | 2.44 |
Price/Cash Flow | 9.74 | 15.42 |
Earnings growth | 16.88% | 17.55% |
In my ETF reviews, risky stocks are companies with at least 2 red flags among: bad Piotroski score, negative ROA, unsustainable payout ratio, and bad or dubious Altman Z-score, excluding financials and real estate where these metrics are unreliable. With this assumption, risky stocks weigh about 10% of asset value.
According to my calculation of aggregate metrics reported in the next table, portfolio quality is slightly superior to the benchmark.
PRF | IWB | |
Altman Z-score | 3.94 | 3.72 |
Piotroski F-score | 5.83 | 5.52 |
ROA % TTM | 7.67 | 6.01 |
Performance
Since its inception, PRF has underperformed the iShares Russell 1000 ETF ((IWB)) by 23.5% in total return. The difference in annualized return is less than 40 bps, which is hardly significant.
Nevertheless, PRF has outperformed in the last 3 years:
PRF vs. competitors
The next table compares the characteristics of PRF and five strategy ETFs in the Russell 1000 universe:
- Invesco Russell 1000 Equal Weight ETF ( EQAL ).
- iShares Russell 1000 Value ETF ( IWD ).
- iShares Russell 1000 Growth ETF ( IWF ).
- Xtrackers Russell 1000 US QARP ETF ( QARP ).
- SPDR® Russell 1000 Yield Focus ETF ( ONEY ).
PRF | EQAL | IWD | IWF | QARP | ONEY | |
Inception | 12/19/2005 | 12/23/2014 | 5/22/2000 | 5/22/2000 | 4/4/2018 | 12/2/2015 |
Expense Ratio | 0.39% | 0.20% | 0.19% | 0.19% | 0.19% | 0.20% |
AUM | $6.46B | $582.96M | $53.17B | $81.24B | $67.00M | $764.97M |
Avg Daily Volume | $19.20M | $3.55M | $498.88M | $449.79M | $568.60K | $2.17M |
Turnover | 9.00% | 27.00% | 15.00% | 14.00% | 34.00% | 33.00% |
PRF has the highest fee, which doesn't look justified by trading intensity: it also has the lowest turnover.
The next chart compares total returns since 4/4/2018 to match all inception dates. PRF is in the middle of the pack. The best performer is the growth fund, followed by the quality fund.
Takeaway
Invesco FTSE RAFI US 1000 ETF holds and weights about 1000 large U.S. companies using an original metric of company size based on book value, cash flow, sales, and dividends. The fund is better diversified than the Russell 1000 Index across sectors and holdings. It also shows more attractive valuation and quality metrics. Nevertheless, performance since inception is marginally behind the capital-weighted benchmark.
Compared to competitors, Invesco FTSE RAFI US 1000 ETF is just an average large-cap fund. Neither past performance nor trading intensity seems to justify its higher expense ratio.
For further details see:
PRF: Value And Quality Are Attractive, Performance And Fee Are Not