A Nasdaq newcomer is challenging some of the stock market’s most reliable benchmarks. On Friday, Research Affiliates’ index division, RAFI, introduced the Research Affiliates Cap-Weighted US ETF (NASDAQ:RAUS), an ETF that aims to replicate the market’s comfortable beat while subtly working around what its designers refer to as profound flaws in conventional index design.
Launched in collaboration with ETF Architect, RAUS follows the Research Affiliates Cap-Weighted Index (RACWI). On the surface, the approach resembles the S&P 500 or Russell 1000. But rather than using just market capitalization to determine which names pass the threshold, RACWI uses fundamentals: sales, cash flows, shareholder dividends, and book value, before resorting to cap-weighting.
Also Read: SoFi Bets Big On AI With First ETF Launch In Two Years
The goal is to avoid the whipsaw effect of adding hot stocks at peak valuations and dropping them after big losses, a cycle that critics argue bakes "buy-high, sell-low" behavior into mainstream indexes.
Rob Arnott, founder of Research Affiliates believes that traditional benchmarks reward froth and punish bargains, and RACWI ties membership to fundamentals while keeping the cap-weighting that investors know.
Since launch in 2021, RACWI has outperformed the S&P 500 by roughly 0.81 percentage points per year, while having a 95% overlap of holdings and comparable turnover. That makes it look almost indistinguishable from the broad market, though with less performance drag from index rebalancing.
The reason, Research Affiliates contends, is that the outcome is an index, and now an ETF, that acts like a traditional benchmark but is built on firmer foundations. Arnott said that investors don’t notice the cost of traditional indexes because performance is measured against themselves. “We believe RAUS embodies the best qualities of traditional passive investing: low-cost, transparency, low-turnover and vast capacity, while eliminating structural inefficiencies that could erode returns," he noted.
For investors, the rollout is a quiet rebalancing of a recipe they already know and trust, with the promise of translating efficiency into incremental returns.
Read Next:
Photo: bigjom jom via Shutterstock
