After disappointing investors through 2017’s earlier stages, U.S. small-cap stocks and the relevant exchange traded funds have recently been gaining momentum. Investors reconsidering smaller companies have scores of options to mull over, but one of the more unique small-cap ETFs is the Oppenheimer Small Cap Revenue ETF (NYSEArca: RWJ).
RWJ follows a revenue weighting methodology, which 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.
RWJ has recently been gaining momentum as highlighted by a one-month gain of 8.3%. Furthermore, small-cap stocks were strengthening as traders renewed their outlook on the Trump administration’s pro-growth agenda. In recent weeks, U.S. markets have been roiled over uncertainty concerning President Donald Trump’s ability to push through pro-growth economic policies through Congress as the White House wades through political intrigue. However, the small-cap segment is recovering on expectations that the administration could overhaul the U.S. tax policy.
Related: 4 Smart Beta Small-Cap ETFs to Limit Potential Drawdowns
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.
At the end of the second quarter, RWJ was also underweight healthcare, technology and financial services names relative to S&P SmallCap 600. However, RWJ’s price-to-earnings ratio was significantly below that of the S&P benchmark at the end of June, according to issuer data.
Over the past three years, RWJ’s compound annual growth rate (CAGR) has been 10.7% while the ETF had a maximum drawdown of 25.8% during that span. That is inline with the Russell 2000 Index over the same period.
Small-caps, though, can still navigate through a slowly rising rate environment. Smaller companies, which focus on U.S. markets, are less exposed to a stronger U.S. dollar as rates rise, which would more negatively affect larger corporations with a global footprint. Additionally, periods of rising rates also coincide with expanding economies, which often benefit smaller companies.
Year-to-date, investors have added nearly $91 million in new assets to RWJ.
For more information on small-capitalization companies, visit our small-cap category.