The theory of a fundamentally constructed ETF is very sound. Instead of building the portfolio based solely on the market capitalization of a stock, as is done in traditional indexing, fundamental ETFs use factors that are believed to better predict outperformance. These factors include sales, cash flow, book value, and dividends. The main criticism with a traditional cap weighted index is the potential for overconcentration, as bigger companies take up a disproportionate weight in the portfolio. Fundamental indexing reduces that likelihood, at least at the stock level. They certainly can’t make that claim at the sector level. I nearly fell out of my chair when doing my latest review on this ETF and noticed that the weight in energy was 27%, compared with 22% for the cap weighted XIC. Financial Services are also significantly overweight, representing 39%, compared with 29% in XIC. Combined, there is two thirds of the portfolio invested in two sectors, compared with just half of the broader market. That is one heck of a bet for a supposedly diversified portfolio. Yes, the valuation metrics of PXC are better than XIC, but it’s difficult to ignore the concentration risk in the portfolio. If you are comfortable with this concentration, then I believe this ETF will do well over the long term. However, if you are uncomfortable with the risks, particularly with the uncertainty around energy, you will want to avoid it, and if you hold it, you will likely want to sell it.