Like the PowerShares FTSE RAFI Canadian Fundamental Index ETF (TSX: PXC) highlighted above, this ETF is constructed using the same fundamentally driven, rules based process, ranking stocks on a number of fundamental criteria. Apart from investing in U.S. traded stocks, this ETF holds roughly 1,000 names, ten times that of its Canadian counterpart. The concentration issue that is prevalent in the Canadian fundamental ETFs is not seen in the U.S. versions. While there is still an overweight in energy and financials, the combined weight is roughly half that of PXC.
As in Canada, the valuation levels are more appealing than the cap weighted XSP, however the forward looking growth estimates favour XSP. Over the long term, I expect this to deliver comparable returns to XSP, but with modestly lower levels of volatility, resulting in slightly better risk adjusted returns. Still, I would likely favour XSP based on its significantly lower cost.20