It tracks roughly 1,500 US small- and mid-cap stocks based on a fundamental index methodology. It is a smart beta strategy that determines holding weights using four fundamental measures (book value, cash flow, sales, and dividends) instead of market capitalization.

It suits long-term investors who are not satisfied with market-cap-weighted small-cap ETFs and want a value tilt or fundamentals-based diversification.

It is a passively managed (index-tracking) ETF launched by Invesco in 2006.

Instead of market capitalization, it sets holding weights using a composite score of four fundamental measures: book value, cash flow, sales, and dividends. This approach curbs excessive exposure to overvalued growth stocks and gives higher weights to relatively undervalued small- and mid-cap value stocks.

• Weights are set by a composite score of four fundamental measures instead of market cap, which reduces price-momentum bias
• Diversification across about 1,500 small- and mid-cap stocks keeps single-stock concentration low

Assets under management (AUM) stand at $2.7B, and the expense ratio is 0.36% per year.

Its strategic philosophy is the same as PRF, which applies the same fundamental index approach to large caps. The difference lies in the market-cap range of its holdings.

Because of its small- and mid-cap value character, it tends to perform relatively well in value-led and economic recovery phases rather than in periods of strong growth-stock leadership. Interest rate levels and the economic cycle affect its short-term performance.

Institutional demand for fundamentally weighted smart beta strategies remains steady, and the fund has established itself as a choice for investors who want a value tilt relative to market-cap-weighted small-cap indexes. Inflows tend to stand out when value stocks are in favor.

Fundamental weighting provides a value tilt and broad diversification, but the expense level and the possibility of being left behind by growth stocks are the main points to note.

FNDX, FNDA, and PRF shown in the table are peer ETFs that apply the same fundamental index methodology: PRF covers large caps, FNDA covers small caps, and FNDX applies fundamental weighting to the S&P 500 universe. JHMM has a similar value tilt through a multifactor strategy. If you prefer a market-cap-weighted small-cap ETF, you can consider IWM or VBR as direct comparison alternatives, and IWC is also worth considering for a smaller market-cap range.

Here are the points to review before investing in PRFZ. A fundamentally weighted small- and mid-cap ETF offers a long-term value tilt, but you should check its costs and cycle risk in advance.

Because of its high small-cap weighting, volatility can increase during recessions or credit crunches. If growth-stock leadership persists for a long time, it may also continue to lag market-cap-weighted small-cap indexes.

As an alternative to market-cap-weighted small- and mid-cap ETFs, it suits investors who want a value tilt and broad diversification. Given its somewhat higher expense ratio, it is advisable to choose it only after thoroughly reviewing its strategic fit from a long-term holding perspective.