ETF Chart of the Day: Revenue Weighting

Over time we have profiled ETFs that are outright actively managed if not quasi-active, and some of these funds tend to fly under the radar because of challenges that involve length of time on the market, fund sizes in terms of asset base, average daily trading volume, and other obstacles that are generally possible to overcome in terms of sizing up an ETF product and efficiently investing in it.

One such example is RWV (RevenueShares Navellier Overall A-100 Fund, Expense Ratio 0.60%) which recently caught our attention once again as it traded at a new all-time high ($49.27 on an intraday basis) last week. RWV remains small however in terms of assets under management, with about $7.3 million currently invested in the fund, and the ETF only averages about 1,100 shares traded daily.

There are some days that go by where no shares trade hands, and this is all too common at times in smaller ETFs.

This ETF is anticipating the five year anniversary of its existence in the near future however (1/23/09) and some institutional and advisory/management types that invest in ETFs, especially ones that fall in the “active” category will wait for live performance benchmarks (5 year for example) to be reached before taking a close, hard look.

As its name suggests, RWV utilizes an investment strategy formulated by NV based Navellier & associates, where one hundred large cap stocks are isolated using proprietary screens to compose the Naveliier Overall A-100 Market Cap Index. “A” here is in terms of “A” rated, as far as Navellier’s internal report card on these stocks.

Thus the index takes shape accordingly, and then RevenueShares goes an extra step and weights these one hundred components by their top line revenue, consistent with the RevenueShares methodology that exists
across other more well-known funds like RWL (RevenueShares Large Cap Expense Ratio 0.49%), RWK (RevenueShares Mid Cap, Expense Ratio 0.54%) and RWJ (RevenueShares Small Cap, Expense Ratio 0.54%) for example.

The revenue weighting tends to temper back the individual stock exposure/individual stock risk in terms of the overall basket, as a name like GILD which was a 19.96% weighting in the Market Cap Index as of 9/30/13 is weighted only 4.35% in the end product of RWV, which is the revenue weighted version of this index.