As market concentration pushes valuations toward historic highs, funds that combine small-cap and mid-cap (SMID) companies present a compelling option. However, all SMID-cap funds aren’t created equal. One SMID-cap fund that departs from the norm in a big way is the Invesco RAFI US 1500 Small-Mid ETF (PRFZ ). PRFZ reaches a major milestone on September 20, 2026, celebrating its 20-year anniversary.
The soon-to-be 20-year-old PRFZ provides a battle-tested and differentiated approach to SMID-cap investing. Rather than tracking traditional market-cap benchmarks that weigh companies based on rising stock prices, the fund tracks the FTSE RAFI US 1500 Small-Mid Index (also known as the RAFI Fundamental Select US 1500 Index). This methodology evaluates companies across four core fundamental measures of real economic size: adjusted sales, book value, operating cash flow, and dividends/buybacks discussed in this article.
Key Takeaways:
PRFZ celebrates its 20-year anniversary by offering a battle-tested alternative to market-cap-weighted small- and mid-cap indexes.
Rather than weighting companies by stock price, PRFZ tracks the FTSE RAFI US 1500 Small-Mid Index. This selects and weights holdings based on four fundamental metrics: book value, cash flow, sales, and dividends/buybacks.
By anchoring to economic footprint rather than market capitalization, PRFZ systematically filters out unprofitable companies. It applies a counter-cyclical rebalancing mechanism that has delivered higher 10-year annualized returns with lower volatility.
See More: How PRFZ Uses Fundamental Indexing in Today’s SMID-Cap Market
Filtering Quality and Mitigating Volatility
Broad small-cap benchmarks like the Russell 2000 can carry a high concentration of unprofitable or over-leveraged companies. Meanwhile, PRFZ’s fundamental filter systematically avoids speculative names that lack earnings support. It selects and weights the 1,001st through 2,500th largest U.S. companies based on fundamental size rather than stock market valuation. Therefore, the fund filters out financial drag and focuses on higher-quality, resilient businesses.
Furthermore, PRFZ introduces a disciplined, counter-cyclical rebalancing mechanism. During annual reconstitutions, if a company’s stock price has surged far past its fundamental footprint, the index systematically trims the holding. Conversely, if a fundamentally sound company experiences a temporary price dip, the fund increases its allocation. This effectively enforces a “buy low, sell high” discipline.
Though PRFZ is a SMID-cap fund targeting 1,500 companies just below the large-cap scale, comparing it against the small-cap Russell 2000 via the iShares Russell 2000 ETF (IWM ) offers a clean lens to view fundamental indexing in action. While IWM is traditionally categorized as a small-cap benchmark, both funds hold significant mid-cap exposure (over 58% for PRFZ and 71% for IWM), This makes them SMID-cap peers for comparison. By anchoring to economic footprint rather than stock price, PRFZ systematically avoids the heavy concentration of unprofitable, speculative companies that frequently drag down traditional, cap-weighted small-cap benchmarks.
While PRFZ is just days shy of a full 20-year track record at the time of this writing, its 10-year performance underscores the strength of this approach. PRFZ delivered an 11.50% annualized total return over the past decade compared to 10.47% for IWM. Additionally, that excess return was achieved with lower volatility (22.14% for PRFZ vs. 22.98% for IWM).
Two Decades of Proven Implementation
PRFZ has a 0.36% expense ratio and $2.74 billion in assets under management (as of September 16, 2026). It has proven its enduring value over twenty years of varying market cycles. With more uncertainty heading into the final months of 2026 and into 2027, the fund is worthy of consideration as a SMID-cap alternative.
For investors seeking growth opportunities beyond overvalued large-cap benchmarks, SMID-cap equities offer an alternative pathway for growth. Two decades after its inception, PRFZ remains a core solution for allocators seeking small- and mid-cap upside with reduced volatility and without taking on excessive valuation risk.
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VettaFi LLC (“VettaFi”) is the index provider for PRFZ, for which it receives an index licensing fee. However, PRFZ is not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of PRFZ.
