Some mid-cap exchange traded funds are shaking off their lethargy from earlier this year and are poised to end 2017 on strong footing. For example, the Oppenheimer Mid Cap Revenue ETF (NYSEArca: RWK) is up about 8% since the start of the fourth quarter and currently resides near new highs.
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.
The $356 million RWK, which is fast approaching its tenth anniversary, holds 401 stocks and follows the OFI Revenue Weighted Mid Cap Index.
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.
RWK selects components from the broad basket of S&P MidCap 400 stocks but reweights holdings based on each company’s revenue, producing a portfolio that could potentially provide a better representation of companies’ economic contribution to the benchmark index. 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.