It is a passive ETF that invests in small- and mid-cap stocks of developed markets excluding the United States, weighted by fundamentals such as revenue and cash flow. Rather than market capitalization, the portfolio weights are determined by company fundamentals, providing diversification across developed-market ex-US small- and mid-cap stocks.

It is well suited for investors who want exposure to developed-market ex-US small- and mid-caps through a fundamentally weighted approach while accepting the volatility of small- and mid-cap stocks and currency risk.

It is an ETF run by Invesco using a passive (index-tracking) management approach.

How to Invest in the Invesco RAFI Developed Markets ex-US Small-Mid ETF

It tracks an index that holds small- and mid-cap stocks from developed markets excluding the United States, weighted by fundamental indicators such as revenue, cash flow, and dividends. Unlike market-cap weighting, the portfolio weights are set by fundamentals, reducing concentration in expensive names, while diversification into developed-market ex-US small- and mid-caps reflects a value tilt in the structure.

• Fundamental weighting across developed-market ex-US small- and mid-cap stocks
• Construction designed to reduce market-cap concentration

Assets under management (AUM) stand at $359.4M, and the total expense ratio is 0.47% per year.

Compared with market-cap-weighted developed-market ex-US small- and mid-cap ETFs, the fundamental weighting approach is the primary point of comparison.

Developed-market ex-US small- and mid-cap stocks respond sensitively to global risk appetite, dollar strength, and each country's domestic economy. Fundamental weighting reflects a value tilt and tends to show different behavior from market-cap-weighted indices. Given the nature of small- and mid-caps, volatility tends to be higher than for large-cap stocks.

Developed-market ex-US small- and mid-caps see shifting fund flows depending on global risk appetite, currency trends, and each country's domestic outlook. In phases where interest in value and fundamental investing rises, money can move into this product category. Performance also varies with country-level economic conditions and currency variables, which warrants attention.

Fundamental weighting and diversification across small- and mid-caps are strengths, while small- and mid-cap volatility, currency exposure, and tracking difference are considerations.

For market-cap-weighted exposure to developed-market ex-US small caps, a direct alternative is SCZ, and for another way to access developed-market ex-US small caps, products such as GWX are also comparable options. For developed-market ex-US small-cap dividend payers, products such as DLS can be considered alongside. The three products shown in the table—FNDF, GSIE, and IGF—differ from a small- and mid-cap focus in that they cover, respectively, developed-market ex-US large-cap fundamentals, factor equities, and a global infrastructure strategy. This ETF stands apart by fundamentally weighting developed-market ex-US small- and mid-cap stocks.

These are the points to review before investing in PDN. Fundamental weighting and diversification across small- and mid-caps are appealing, but small- and mid-cap volatility, currency exposure, and tracking difference need to be checked in advance. It is also advisable to compare it with market-cap-weighted developed-market ex-US small- and mid-cap products.

Slowdowns in each country's domestic economy, currency moves, and small- and mid-cap volatility are the main variables behind long-term performance, and fundamental weighting can lead to a different composition from market-cap-weighted indices. Given the nature of small- and mid-cap stocks, drawdowns can be sharp during broad market sell-offs.

It is a suitable candidate for investors seeking fundamentally weighted exposure to developed-market ex-US small- and mid-cap stocks. If market-cap weighting is the priority, products such as SCZ or GWX are worth comparing, while those who want fundamentally weighted exposure to developed-market ex-US small- and mid-caps should weigh this product alongside them before deciding.