When market volatility sends speculative stocks on wild rides and mega-cap tech names dominate headlines, some investors look for a different approach: fundamental indexing. Invesco RAFI US 1000 ETF (NYSEARCA:PRF) offers exposure to U.S. large-cap stocks weighted not by market capitalization, but by fundamental metrics like sales, cash flow, and dividends. The question is whether this methodology delivers enough differentiation to justify its place in a portfolio.
How PRF Constructs Its Portfolio
PRF tracks the RAFI U.S. 1000 Index, which selects and weights holdings based on fundamental factors rather than market cap. This means companies with stronger cash flows, higher book values, and greater sales receive larger allocations, regardless of their stock price momentum. The result is a portfolio that tilts toward value characteristics while maintaining broad diversification across sectors.
The ETF casts a wide net with over 600 positions while charging a 0.34% expense ratio for its fundamental screening process. The portfolio avoids over concentration by spreading assets across sectors, with technology and financials representing the largest allocations at roughly 18% and 16% respectively. This balanced approach prevents any single industry from dominating returns.
Mega-cap tech names like Alphabet (NASDAQ:GOOGL), Apple (NASDAQ:AAPL), and Microsoft (NASDAQ:MSFT) still appear among top holdings, but the fundamental weighting creates meaningful differences from traditional indexes. Intel (NASDAQ:INTC) provides a clear example: the company commands a 1.4% position in PRF—significantly higher than its S&P 500 weight—because the fundamental methodology rewards its strong cash flows even as the stock price has struggled.
Performance Against Traditional Benchmarks
The fundamental weighting approach has delivered consistent outperformance against the S&P 500, with the advantage most pronounced over longer periods. The ten-year comparison shows PRF returning 276.3% versus 267.2% for the benchmark and S&P 500 ETFs like Vanguard’s VOO.
Against pure value competitors, PRF occupies a middle ground. Its 18.6% one-year return exceeded both Vanguard Value ETF (NYSEARCA:VTV) and iShares Russell 1000 Value ETF (NYSEARCA:IWD), suggesting the fundamental approach captures value characteristics while avoiding the deep value traps that can plague traditional value indexes.
The Tradeoffs Investors Accept
The cost structure reflects PRF’s active methodology, with a 0.34% expense ratio that’s eight times higher than passive alternatives like Vanguard Value ETF. Investors pay this premium for the fundamental screening process and rebalancing that maintains the fund’s value tilt across changing market conditions.
The dividend yield of 1.6% provides modest income but won’t satisfy those prioritizing cash flow. PRF works best for investors who want value exposure without abandoning growth sectors entirely, and who believe fundamental metrics offer better long-term signals than market cap weighting alone.