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.
Additionally, using revenue and measuring a company’s top-line performance can be a great way to weight an index that has high predictability of future outperformance. Revenue doesn’t sway with market sentiment and cannot be manipulated.
When comparing RWK to the benchmark S&P MidCap 400, the revenue-weighted ETF takes a greater tilt toward small-capitalization stocks and leans toward the value category, whereas the benchmark index focuses more on middle-capitalization stocks and a larger position in growth-oriented companies.
RWK is also overweight consumer cyclical, financials and industrials while underweight real estate when compared to the benchmark index.
For more information on alternative index-based strategies, visit our smart beta category.