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The FTSE RAFI index ETFs are classified as “passive”, yet they e “fundamentally” weighted. How is it possible to categorize an index as both passive and fundamentally weighted?

April 26, 2017categorize Classified ETFs FTSE fundamentally index passive possible rafi weighted

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The FTSE RAFI index ETFs are classified as “passive”, yet they
e “fundamentally” weighted. How is it possible to categorize an index as both passive and fundamentally weighted?

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FTSE RAFI based ETFs select securities “passively” and those stocks are weighted “fundamentally”. The RAFI based ETFs do not employ filters or quantitative methods to select securities. Rather, they use passive selection that combines cap weight and three other factors. That results in a selection that closely replicates indexes that are selected using only market capitalization. As such, from a practical standpoint, RAFI indexes are passive selection (not screened or quant). The main difference in RAFI indexes is in the weighting of stocks. The selected RAFI stocks use a multi-factor fundamental weight rather that capitalization weight.