Broadly speaking, U.S. stocks are not alarmingly expensive, but as one of the longest-running bull markets in history ages, investors are looking for other value destinations. Predictably, that includes ex-U.S. developed markets.
While there is a plethora of ex-U.S. developed markets exchange-traded funds on the market today, one of the more unique options for accessing developed world equities is the PowerShares FTSE RAFI Developed Markets (NYSE:PXF). PXF is the developed market counterpart to the popular PowerShares FTSE RAFI US 1000 (ETF) (NYSE:PRF).
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PXF's Index And Allocations
The $958 million PXF, which is 9.5 years old, tracks the FTSE RAFI Developed ex-U.S. Index. That benchmark is designed to track the performance of the largest developed market equities (excluding the US), selected based on the following four fundamental measures of firm size: book value, cash flow, sales and dividends. The equities with the highest fundamental strength are weighted according to their fundamental scores, according to PowerShares.
PXF is not an explicit value fund, maybe more incidental by contact, but it is hard to argue with the ETF's long-term results.
In addition, the fund holds growth stocks because its approach doesnt eliminate them completely, just has less exposure to them than market-cap-weighted strategies, said Morningstar in a recent note. This helps the portfolio maintain broad diversification. The fund doesnt constrain its country or sector weightings. So far, the approach has paid off. Since the funds inception in June 2007 through November 2016, it has outpaced the foreign large-value Morningstar Category average by 58 basis points annually. Favorable exposure to the materials and utilities sectors contributed the most to its outperformance.
PXF Holdings And Exposures
PXF holds over 1,000 stocks and is a suitable replacement for traditional EAFE exposure as Japan and the U.K. combine for about 40 percent of the ETF's geographic lineup. France, Germany and Canada combine for another 26 percent.
PXF charges a reasonable 0.46 percent per year, or $46 per $10,000 invested. That fee is decent among its category peers and one that is supported by a low turnover ratio.
Even with this alternative weighting technique, the portfolios average five-year turnover is only 16 percent, nearly one third of the category average. The strategy uses the five-year average for each fundamental metric to reduce turnover, noted Morningstar.
Seven of PXF's top 10 holdings trade on major U.S. exchanges.
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