Specifically, the rules-based, disciplined smart beta indexing methodology targets known indices like the S&P 500 and tries to improve their performance return through weighting each security in the index by top line revenue. Components are then rebalanced every quarter to keep the Revenue-Weighted indices in line with the companies’ most recently reported revenue levels.
For instance, RWL reweights large-cap S&P 500 companies based on revenues, RWK reweights constituents from the S&P MidCap 400 Index, and RWJ reweights on S&P SmallCap 600 stocks. RDIV offers growth and income potential with access to the top large- and mid-cap (S&P 400 & 500) dividend paying stocks weighted by revenue.
Revenue weighting could provide diversified exposure to the market, is not influenced by stock price, reflects a truer indication of a company’s value and offers stable sector exposure. Moreover, revenue weighting may provide a more value-oriented portfolio and historically outperformed in a value-driven market while showing lower drawdowns during growth-driven markets.
By rebalancing toward companies with persistent sales, revenue weighting helps keep a portfolio from overstaying during an overheating market. The result could be a portfolio with better risk-adjusted returns over the long haul.
Financial advisors who are interested in learning more about CFP/CIMA accredited panels on the online conference can register for the February 8, 2017 ETF Trends Virtual Summit.