I'm The Only One Who Thinks This, But Still

The other day IndexUniverse noted that the PowerShares FTSE RAFI US 1000 Portfolio (PRF) celebrated its fifth anniversary. The article also noted that the fund had doubled the return of the S&P 500 since its inception returning 23.1% versus 11.99% for the S&P 500--those numbers include dividends.

When PRF first listed I wrote this article about it for TheStreet.com. I drew a conclusion about the fund that seemed odd but still it is what I saw; to me this struck me as looking a lot like the Russell 2000 in terms of comparing the back test to other indexes. Upon publishing this article Rob Arnott, the brains behind the RAFI process, called my house to tell me I was wrong. What could I say?

As time went on the correlation between PRF and the Russell 2000 seemed to persist. I mentioned this later on the blog and long time reader RW suggested I look at the Russell 1000 Value Index which is tracked by an ETF with ticker IWD. This of course made sense and I hadn't thought about it since that last blog post.

I hadn't looked at the fund in quite a while but the IU article made me curious to see what the fund had done. Five years is not insignificant. Long term holders appear to have gotten a small cap effect. I'm sure anyone who has held the fund would not complain as PRF has delivered a superior result to SPY or IWD and for the trailing twelve months PRF looks a lot like IWD but this just seems like a weird thing to me.

The small cap effect could easily be just my seeing what I want to see but it I think it could be argued that PRF seems to take on different characteristics at different times. This is a fundamentally weighted index fund. Other fundamentally weighted index fund providers include RevenueShares and WisdomTree. This makes me wonder if any of their broad based funds do something like this.

To the extent this blog is about process, process sometimes includes stumbling across what might be an anomaly and trying to figure it out. For now I have no conclusions just an ongoing observation that I'm still trying to sort out. Any ideas?