After disappointing earlier this year, some U.S. small-cap ETFs have recently shown signs of strength. Up more than 9% this month, the Oppenheimer Small Cap Revenue ETF (NYSEArca: RWJ) is certainly part of that group.
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.
Following Election Day, investors flocked to small-cap ETFs as markets priced in President Donald Trump’s “America First” mantra that would help domestically-oriented companies led the next leg in economic growth. However, investors pulled money from some major small-cap ETFs during the first quarter.
Small-caps are focused on the domestic economy and have less direct exposure to global geopolitical uncertainty and currency risks, as opposed to large-cap companies that have an international footprint, which may be affected by overseas risks and a strengthening U.S. dollar.
RWJ take the stocks found in the widely followed S&P SmallCap 600 Index and weights those names by revenue. The $508.3 million RWJ’s holdings have an average market value of $1.42 billion, putting the ETF at the higher end of small-cap territory.
RWJ’s revenue-weighted methodology leads to significant sector-level differences relative to traditional small-cap strategies. For example, at the end of the second quarter, RWJ allocated about 51% of its combined weight to the consumer discretionary and industrial sectors. Those sectors combined for less than 35% of the S&P SmallCap 600.
Related: Factors ETF Investors Should Look For
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.
With its recent surge, RWJ trades about 5% above its 50-day moving average and more than 2% above its 200-day line. The ETF resides just 4% below its 52-week high.
For more information on small-capitalization companies, visit our small-cap category.