Exchange traded funds that offer the traditional market capitalization-weighted approach to the S&P 500 are wildly popular. Just look at the SPDR S&P 500 ETF (NYSEArca: SPY) and the iShares Core S&P 500 ETF (NYSEArca: IVV).
SPY and IVV are the largest and third-largest U.S.-listed ETFs, respectively. The two ETFs combine for over $204 billion in assets under management. Despite the dominance of SPY and IVV, some advisors and investors have embraced alternative routes to the S&P 500, including equal-weight funds. Another idea is weighting the S&P 500 by revenue. [Equal Weight ETFs for All]
That is the approach used by the $210 million RevenueShares Large Cap Fund (NYSEArca: RWL). RWL, which celebrated its sixth anniversary last week, also features a valuation component to steer its weight away from stocks that could be perceived as overvalued.
“The way the ETF rebalances every quarter shifts it into stocks with lower price-to-sales ratios. If a stock’s price — but not its revenue — went up over the quarter, the ETF buys fewer shares of the stock. If the stock’s price went down, but revenues stayed the same or increased, it buys more shares of the stock. The securities in the ETF remain the same, but their weighting in the ETF will likely differ from quarter to quarter,” writes Eric Balchunas for Bloomberg.
RWL’s lineup has the potential to surprise investors accustomed to traditional S&P 500 ETFs. For example, Wal-Mart (NYSE: WMT) is RWL’s largest holding at almost 4.1% of the fund’s while Apple (NasdaqGS: AAPL), SPY’s largest holding, is relegated to the sixth spot in RWL. Phillips 66 (NYSE: PSX) has a larger weight in RWL than Apple and ConocoPhillips (NYSE: COP), the company that spun Phillips 66 off.