More Powershares RAFI ETFs On the Way (XLK, PRF)

Powershares Capital Management has filed a prospectus with the SEC for new series of ETFs based on RAFI's Fundamental Indexation methodology. Fundamental Indexation uses quantitative measures of firm size, rather than market capitalization to build the index.

This avoids the unintentional overweighting of companies with market caps in excess of their economic value. RAFI offers a reprint of an article by Jack Traynor in the Financial Analysts Journal on Why Market-Valuation-Indifferent Indexing Works. Over time, RAFI indexes tend to outperform cap weighted indexes by about 2% per year.

These new ETF's will be alternative to the existing Select Sector SPDRs which chop up the S&P500 into nine sectors:

* PowerShares FTSE RAFI US 1500 Small-Mid Portfolio
* PowerShares FTSE RAFI Energy Sector Portfolio
* PowerShares FTSE RAFI Basic Materials Sector Portfolio
* PowerShares FTSE RAFI Industrials Sector Portfolio
* PowerShares FTSE RAFI Consumer Goods Sector Portfolio
* PowerShares FTSE RAFI Health Care Sector Portfolio
* PowerShares FTSE RAFI Consumer Services Sector Portfolio
* PowerShares FTSE RAFI Telecommunications & Technology Sector Portfolio
* PowerShares FTSE RAFI Utilities Sector Portfolio
* PowerShares FTSE RAFI Financials Sector Portfolio

I expect that in particular, the Telecommunications & Technology Sector fund will greatly outperform the Technology Sector SPDR (XLK), because that market segment is littered with overvalued companies. The RAFI US 1500 Small-Mid Portfolio compliments the existing RAFI US 1000 Fund (PRF), to create a complete index of the top 2500 US stocks.

I believe that Powershares intends these RAFI funds to be the passive counterparts to a new series of Dynamic Intellidex Funds which will be "semi-active" index ETFs. As usual, Powershares is charging 0.60% of NAV as management fee.