Among the various ways to construct an equity-based exchange traded funds, revenue weighting may not garner the acclaim afforded other weighting methodologies, but the strategy has proven potent as highlighted by funds such as the RevenueShares Large Cap Fund (NYSEArca: RWL) and the RevenueShares Ultra Dividend Fund (NYSEArca: RDIV).
RevenueShares is bringing the revenue weighting concept to an international ETF with the debut of the RevenueShares Global Growth Fund (NYSEArca: RGRO). The RevenueShares Global Growth Fund is not just revenue-weighted. In fact, the new ETF features a GDP screen to find countries that are increasing revenues.
“The gist of the methodology is: We’re following around the globe where revenues are growing. With the GDP screen we use, we are targeting the countries that are growing their revenues. Then, by putting the revenue screen next, we’re targeting quality companies within those countries that are growing their revenues and have an attractive purchase price as we are believers that the price you get in at matters,” said RevenueShares Head of Capital Markets Ryan Kirlin in an email to ETF Trends.
RGRO is a combination developed/emerging markets ETF and one of the cornerstones of its security selection process is the price-to-sales ratio. The new ETF has a price-to-sales ratio of 0.3, according to RevenueShares data, implying the fund is undervalued relative to the MSCI EAFE Index and the MSCI Emerging Markets Index, which have price-to-sales ratios of 0.96 and 0.93, respectively. [Revenue Weighting Works With Banks ETFs, Too]
RGRO “is comprised of the top 5 developed and top 5 emerging countries based on their percentage growth of their year over year GDP from the prior 2 quarters. The index universe is the Standard & Poors Global Broad Market Index,” according to RevenueShares.
RevenueShares selects the top 10 revenue-generating countries and assigns a weight of 10% to each. RGRO’s developed market country weights are allocated to Denmark, Hong Kong, Israel, Norway and Singapore, several of which carry AAA credit ratings. The ETF’s emerging market allocations are Brazil, Czech Republic, Greece, Mexico and Thailand.
Nearly three-quarters of RGRO’s weight goes to staples stocks with industrials and financial services combining for 10%. The new ETF’s annual expense ratio is 0.7%.
ETF Trends editorial team contributed to this post.