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.
RWK allocates about 36% of its weight to the consumer discretionary and technology sectors, giving the ETF a growth feel. Adding to the cyclical feel is a combined 36% weight to industria, financial services and materials stocks.
Oppenheimer’s other revenue-weighted domestic ETFs include the Oppenheimer Large Cap Revenue ETF (NYSEArca: RWL), Oppenheimer Small Cap Revenue ETF (NYSEArca: RWJ), Oppenheimer Ultra Dividend Revenue ETF (NYSEArca: RDIV) and the Oppenheimer Financials Sector Revenue ETF (NYSEArca: RWW).
The underlying index implements a rules-based, disciplined smart beta indexing methodology targets known indices like the S&P 500 and tries to improve their performance return through weighting each security in the index by top line revenue. Components are then rebalanced every quarter to keep the Revenue-Weighted indices in line with the companies’ most recently reported revenue levels.
For more on Smart Beta ETFs, visit the Smart Beta Channel home page.