Financial services stocks and ETFs have recently been in rally mode, but that ebullience is not restricted to the traditional funds tracking the sector. The Oppenheimer Financials Sector Revenue ETF (NYSEArca: RWW) is up about 5% over the past month.
“Oppenheimer Financials Sector Revenue ETF gives investors targeted access to the same stocks as the S&P 500 Financials Index, which consists of those S&P 500 companies classified in the Financials sector using the Global Industry Classification Standard (GICS) system,” according to Oppenheimer. “We weight each security in the index by revenue instead of by market capitalization, producing what we think is a better representation of the economic reality of the Financials investment universe.”
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.
Looking ahead, a number of factors could continue to support the financial sector. For instance, the Federal Reserve has expressed intention to raise rates, tighten monetary policy. Banks’ most basic profit-making business model is to take on deposits and issue loans, so higher interest rates means higher rates on loans, which translates to improved profit margins.