Investors looking to invest in a revenue-weighted ETF can consider the Oppenheimer Large Cap Revenue ETF (NYSEARCA: RWL) that weights S&P 500 firms by revenue.
There are scores of ways that ETFs weigh U.S. stocks. There is the prosaic, traditional cap-weighted methodology. Some equal-weight funds are also popular with investors, but revenue-weighted strategies also merit consideration.
When it comes to RWL, for example, components are rebalanced every quarter to keep the Revenue-Weighted indices in line with the companies’ most recently reported revenue levels. Long-term data suggest RWL’s strategy works for investors as the ETF has returned nearly 120% since coming to market in early 2008.
Traditional market capitalization-weighted indices are top heavy and expose investors to some of the most high-flying stocks of the current market. If investors are concerned about the potential risks of an overextended market, consider a revenue-weighted exchange traded fund strategy to focus on companies with better fundamentals.
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.
Weighting by sales gives RWL a different look than traditional S&P 500-tracking funds. For example, Apple Inc. (NASDAQ: AAPL), the largest U.S. company by market value, is RWL’s third-largest holding. Several of RWL’s top 10 holdings are not top 10 holdings in standard S&P 500 funds. Wal-Mart Stores Inc. (NYSE: WMT) and Warren Buffett’s Berkshire Hathaway (NYSE: BRK-A) are RWL’s top two holdings, combining for 6.7% of the ETF’s lineup.