On September 12, 2025, Research Affiliates launched the RACWI US ETF, which will track its proprietary RACWI US Index. This is just RA’s second directly managed fund, following Research Affiliates Deletions ETF (NIXT), which launched in September 2024 and targets the stocks dropped from traditional large- to mid-cap indexes.

Research Affiliates, founded in 2002 by Rob Arnott, is a Newport Beach–based investment firm recognized for innovative, research-driven approaches in smart beta, factor investing, and asset allocation solutions. The firm partners globally to deliver mutual funds, ETFs, and other investment solutions, and, as of June 2025, more than $159 billion in assets are managed worldwide using strategies they developed. Their RAFI-branded funds, which embody their Fundamental Index concept, have built a strong track record by selecting and weighting stocks based on economic fundamentals instead of market capitalization. By our count, eight of the 10 RAFI-branded US funds have earned either four or five stars from Morningstar (as of October 1, 2025).

RACWI is a hybrid index that seeks to combine fundamental and cap-weighting components. In a traditional equity index, weightings are determined by sheer size: bigger stocks automatically carry bigger weights, which imposes a sort of large growth/momentum/bubble bias. The term is “market cap” weighted. Research Affiliates tweaks the process by selecting the companies in the index by their fundamental metrics, then cap-weights the resulting pool:

RACWI selects companies based on their economic footprint, using four equally weighted fundamental measures: adjusted sales, adjusted cash flow, dividends plus buybacks, and book value plus intangibles. After this selection step, constituents are cap-weighted, creating an index that looks and behaves almost identically to traditional benchmarks like the S&P 500, with the differentiated selection process historically providing a measurable performance edge.

In theory, that leads to a slightly higher-quality pool of index names and, since fundamental values are less volatile than mere market capitalization, less need to boot out shrinking companies and elevate “the new winners” into the index. It provides, RAFI argues,

a more robust foundation: the scale and success of the underlying businesses, rather than [stock] speculation …

While the ETF is new, the index has a four-year track record. Research Affiliates reports a series of data points about the index vis-à-vis the S&P 500:

• RACWI has historically had less tracking error relative to the S&P 500 than the Russell 1000 does
• RACWI has a turnover nearly identical to the S&P 500, and fewer addition/deletion flip-flops.
• Since its inception (2021), RACWI has outperformed the S&P 500 by approximately 81 basis points annually
• RACWI’s tracking error is under 60 basis points
• RACWI has more than 95 percent overlap in holdings with the S&P 500.

The ETF will charge 0.15%. Because assets are small ($14.28 million) and trading is light, the fund might experience exceptional bid/ask spreads. Morningstar’s trading report for Friday, September 26, 2025, is worth noting:

RAFI anticipates a 30-day bid/ask spread of just 0.12%. The ETF’s webpage is understandably thin on content. That is more than made up for by the vast quantity of research and capital market projections on Research Affiliates’ own site. You will need to create a (free) account to read the content, but the process is painless. That will give you access to the white paper behind the fund: Rob Arnott and Lillian Wu, RACWI: Reinventing Cap-Weighted Indexing (September 2025).

Bottom line: this looks to be a pretty solid option for folks who are looking to invest in the S&P 500 but would appreciate a slight quality tilt to their index.