It is not just large-cap stocks that are reaching new heights. In recent weeks, the U.S. equity market rally has grown to include mid- and small-cap stocks and ETFs. The mid-cap rally has taken an array of mid-cap ETFs to new heights.
An impressive member of the surging mid-cap ETF group has been the Oppenheimer Mid Cap Revenue ETF (NYSEArca: RWK), which is higher by 4.4% over the past month.
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.
Because of the revenue-weighting characteristic, a fund strategy tilts away from potentially overvalued momentum stocks and leans more toward low valuation companies with low price-to-book. The revenue-weight factor could also provide a better or more diversified way for investors to participate in the markets over the long haul. RWK weights the components of the widely followed S&P MidCap 400 by revenue.
“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 Oppenheimer.
The average market value of the ETF’s holdings is $4.56 billion. Home to $333.7 million in assets under management, RWK allocates over 51% of its combined weight to the technology, industrial and consumer discretionary sectors. Materials, healthcare and financial services names combine for nearly 29%.
Middle capitalization stocks, or sometimes referred to as the market’s sweet spot, could help investors achieve improved risk-adjusted returns. Mid-cap companies are slightly more diversified than their small-cap peers, which allows many mid-sized companies to generate more consistent revenue and cash flow and provide more stable stock prices. Additionally, they are not so big that their size would slow down growth.
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. The ETF has a 0.39% expense ratio.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.