The never-ending quest for better mousetraps continues as PowerShares nine sector ETFs that apply Robert Arnott's fundamental indexing methodology of weighting for book value, income, sales and dividends.
This article will focus on the PowerShares FTSE RAFI Financials Sector Portfolio (PRFF Quote). In the Powershares literature, the fund compares itself and its returns to the iShares Dow Jones Financial Sector ETF (IYF Quote) and the S&P Financial Sector SPDR (XLF Quote). All three look to be very similar. They all have large positions in the same mega-cap names; Citigroup (C Quote), Bank of America (BAC Quote), JPMorgan Chase (JPM Quote) and Wells Fargo (WFC Quote). The three funds also have similar weightings in capital-markets names and REITs and tilt toward value over growth. So on the surface, there's not much difference. But as is the case with most new ETFs, the back test is the compelling question when considering the PRFF. In this chart, the back test for PRFF is the leader in orange, the S&P Financial Index in brown and the Dow Jones Financial Index in blue. That the PowerShares back test looks so strong is not a shock for two reasons. From a cynical standpoint, if the results of a back test were horrible, it is reasonable to believe there would be no fund launched. From a more fundamental standpoint, it's not surprising a strategy that generally favors value over growth would show better returns in a sector that is more of a value-oriented part of the market.| PowerShares FTSE RAFI Financials Sector Portfolio Back Test |
| Citigroup (C) Daily |
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