As investors consider alternative ways to access various markets to potentially enhance returns or better manage risks, consider a smart beta exchange traded fund option for traditional exposure to the S&P MidCap 400.
Specifically, the Oppenheimer Mid Cap Revenue ETF (NYSEArca: RWK) selections components from the broad basket of S&P MidCap 400 stocks but reweights holdings based on each company’s revenue, producing a portfolio that could potentially provide a better representation of companies’ economic contribution to the benchmark index.
“By ranking through revenue instead of market capitalization, we remove the traditional index’s bias towards overvalued stocks while maintaining the transparency and broad diversification that has historically attracted investors to index strategies,” according to OppenheimerFunds.
Due to the revenue-weight tilt, investors won’t be exposed to trendy, overpriced stocks that market cap-weighted indices are prone to be, and investors will hold companies with more attractive valuation characteristics with a slight value tilt. By rebalancing the portfolio every quarter towards companies that have had persistent sales, revenue weighting keeps the portfolio from getting ahead of itself in overheating market conditions.