Invesco FTSE RAFI U.S. 1500 Small-Mid ETF PRFZ is a contrarian fund that excels when beaten-down stocks round into form, but its broad reach, low turnover, and competitive fee should keep it on track even when they do not. 

This index strategy sweeps in the broad small-cap market and weights constituents by a blend of fundamental metrics, breaking the link between stocks’ prices and portfolio weightings. When the index rebalances each March, it effectively doubles down on stocks whose prices have waned relative to their fundamentals and trims exposure to the ones that have climbed. This approach can saddle the fund with stocks whose historical fundamentals don’t yet reflect their dim outlooks, and it can also prematurely cut back on winning stocks.

The benefits of this stubborn approach outweigh the drawbacks, though. By paring exposure to rising stocks and adding it to those that have tumbled, the fund mechanically buys low and sells high relative to fundamentals. This indiscriminate faith in battered companies should translate into market-beating returns if stock valuations revert to the mean.

A wide scope allows this fund to benefit from rebounding small-cap stocks across the market. It also diversifies risk. Fundamental weighting gives this fund a mild value tilt, but including a heavy dose of growth stocks ensures that performance relative to the Russell 2000 Index, its Morningstar Category benchmark, is not strictly a bet on value.

This fund has compiled a stellar track record, bookending tepid performance with two red-hot stretches of returns. That pattern is by design. The fund is built to erupt during periods of mean-reversion, like the six-month stretch following the market’s low point of the global financial crisis, when it trounced the Russell 2000  index by 35 percentage points. The fund may look lethargic at times, but its bursts of performance can tide it over during slower periods.

Analyst Rating

Wins by going against the grain.

Analyst

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Prioritizing fundamentals over price has more benefits than drawbacks. It can cling to losing bets or prematurely trim exposure to winners, but the fund excels when stock valuations revert to the mean, and its broad reach keeps it out of trouble even when they don’t. It earns an Above Average Process Pillar rating.

Above Average

Process

Invesco’s equity index management team boasts a wealth of experience and strong supporting infrastructure, including analysts, traders, and technology platforms. It earns an Above Average People rating.

Peter Hubbard, Michael Jeanette, Tony Seisser, and Pratik Doshi are the named managers. Hubbard heads up the index portfolio management team. He has been with Invesco since 2005 and a portfolio manager since 2007. Jeanette leads the equity index team under Hubbard and has been a portfolio manager at Invesco since 2008. Seisser and Doshi joined the team in 2013 and 2018, respectively. These leaders oversee a broader team of experienced portfolio managers who assist with the portfolio’s day-to-day operations.

The team draws on a solid pool of resources from Invesco. Much of the workflow is automated, courtesy of the firm’s proprietary portfolio-management dashboard. A team of analysts assists with corporate actions and advises the team on necessary steps to anticipate upcoming index changes. Trade execution is handed to Invesco’s global trading desk, allowing the managers to focus on mitigating tracking error and tax efficiency. The team is subject to independent risk oversight.

People

Invesco succeeds in a number of areas but also has its share of subpar offerings, along with many others that land somewhere in the middle. A mid-2023 change of CEO, from longtime chief Marty Flanagan to veteran Invesco executive Andrew Schlossberg, is noteworthy, and several other executives retired or departed in 2023. Portfolio-manager shuffles aimed at bolstering poor performers, which began under Flanagan, have continued under Schlossberg, who told Morningstar his most important aim is bolstering “investment quality.” However, major changes of direction or approach are unlikely. The firm retains a Morningstar Parent rating of Average. 
Invesco’s international-equity teams in Texas and New York remain solid. However, the extensive U.S.-equity lineup needs improvement. Fixed-income offerings run the gamut: The multisector and short-term-bond areas are good, but corporate high-yield is less impressive. The firm’s exchange-traded fund lineup includes the popular Nasdaq-focused QQQ; passive strategies make up around 37% of Invesco’s assets under management. Invesco has not been averse to trying new types of strategies, and it was among the firms that immediately launched a spot bitcoin ETF after SEC approval in early 2024.
The picture outside the United States is mixed. Fund performance has been subpar in Asia, and while the picture has brightened in the United Kingdom and Europe, that region still can’t be considered a strength.

Average

Parent

Invesco FTSE RAFI US 1500 Small-Mid ETF

PRFZ tracks a fundamentally-weighted index of 1,500 small- and mid-cap companies in the US that are selected using fundamental metrics.

A smart beta exchange traded fund, the Invesco FTSE RAFI US 1500 Small-Mid ETF (PRFZ) debuted on 09/20/2006, and offers broad exposure to the Style Box - Small Cap Blend category of the market.

Is Invesco FTSE RAFI US 1500 Small-Mid ETF (PRFZ) a Strong ETF Right Now?

Designed to provide broad exposure to the Small Cap Blend segment of the US equity market, the Invesco FTSE RAFI US 1500 Small-Mid ETF (PRFZ) is a passively managed exchange traded fund launched on 09/20/2006.

Should Invesco FTSE RAFI US 1500 Small-Mid ETF (PRFZ) Be on Your Investing Radar?

The Invesco FTSE RAFI US 1500 Small-Mid ETF uses Research Affiliates' Fundamental Index to weight its index and has delivered better returns than passive market-capitalization based ETFs. It has also beaten the well-respected actively managed Royce Value Trust that is my current small-cap investment pick.

PRFZ: Top Performing Small-Cap Fund

iShares Russell 2000 ETF

The iShares Russell 2000 ETF tracks the performance of the Russell 2000 Index. Invesco FTSE RAFI US 1500 Small-Mid ETF tracks the FTSE RAFI™ US Mid Small 1500 Index. Here I compare both ETFs by holdings, risk factors, and most importantly, performance, with the results being I give PRFZ a Buy rating.

PRFZ Outperforming More Popular IWM ETF

Should Invesco FTSE RAFI US 1500 SmallMid ETF (PRFZ) Be on Your Investing Radar?

Is Invesco FTSE RAFI US 1500 SmallMid ETF (PRFZ) a Strong ETF Right Now?

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As the factor investing crowd tilt towards value and fundamental analysis, small- and mid-cap ETFs like the Invesco FTSE RAFI US 1500 Small-Mid ETF (PRFZ) can thrive. Small- and mid-cap equities have been going strong since the move toward Covid-19 vaccinations.

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