NEW YORK ( TheStreet) -- Seasoned ETF investors will be familiar Research Affiliates fundamentally weighted equity indexes as opposed to market cap weighted indexes. The PowerShares FTSE RAFI US 1000 Portfolio (PRF) was the first fundamentally weighted equity ETF and has done very well since its inception compared to the SPDR S&P 500 (SPY).Fundamental weighting has since been applied to many other equity funds and even a corporate bond fund and the latest fundamentally weight fund is the PowerShares Fundamental Emerging Markets Local Debt Portfolio (PFEM). Instead of looking at things like cash flow and revenue in the equity funds, PFEM weights sovereign debt by country in the fund on the basis of population, GDP, energy consumption and land. Energy consumption is viewed as a proxy for economic activity and with land the methodology is concerned with a country's natural resources.
The largest country weighting in PFEM is Russia at 11% followed by Brazil at 10%, Indonesia and Mexico at 8% each and South Korea at 7% before getting smaller from there. PowerShares reports that the effective duration of PFEM is 5.61 years which means that the fund should not be overly sensitive to rising interest rates, interestingly the effective duration for PCY is much longer at 9.6 years.