RAFI™, the original inspiration for the smart beta term, has produced consistently strong performance when measured against a style-equivalent, or value, benchmark. $100 invested in RAFI at the beginning of 1988 grew to $5,500 by yearend 2022, whereas the same amount invested in the Russell 1000 Value Index grew to $3,000 over the same time span.
Value stocks suffered four dramatic drawdowns since 1988, but—surprisingly—value companies did not falter, continuing to deliver dividend income growth to investors. RAFI investors enjoyed 2% higher average annual income growth than investors in either the cap-weighted market or a value benchmark.
From 1988 to 2022, RAFI fared better than conventional value investing during the biotech bubble and the 2008–2010 GFC and shrugged off the Covid crash almost entirely. If a better alternative to a cap-weighted strategy for a broad-market, low-turnover indexed portfolio exists, we believe it has yet to be identified.
