Revenue-Weighted ETFs Consistently Outperform Market Cap Weighted Funds

“Revenue Weighting” isn’t a new concept within index funds, but it’s an often underappreciated way of thinking about investing, and thus it is worth examining some of the more prominent ETFs that occupy this space.

Formerly known as “RevenueShares,” Oppenheimer now owns the suite of “Revenue Weighted” equity funds led by RWL (Oppenheimer Large Cap Revenue, Expense Ratio 0.39%, $428 million in AUM), which launched back in February of 2008. RWL saw a nice spike in volume just yesterday with more than 400,000 shares trading during the session, versus its average daily volume of about 70,400 shares. There are ten products total that populate this “Revenue Weighted” realm by Oppenheimer, with the most notable fund being RWL, which tracks a derivative of the S&P 500 market capitalization index, except the individual equity members are ranked by top line revenue. According to fund literature, Oppenheimer “believes this approach removes potential bias towards overvalued stocks” and separately that “consistent revenue generation is a historical indicator of quality.”


Other Revenue Weighted products such as RWK (Oppenheimer Mid Cap Revenue, Expense Ratio 0.39%, $225 million in AUM), RWJ (Oppenheimer Small Cap Revenue, Expense Ratio 0.39%, $378 million in AUM), and RWW (Oppenheimer Financials Sector Revenue, Expense Ratio 0.49%, $22 million in AUM) are structured the same way as RWL, also based on S&P indices (Mid Cap, Small Cap, and Financials Sector), but reshuffling the individual index members by top line revenue instead of market capitalization.

If we look at the top holdings of RWL versus an S&P 500 tracker such as SPY (SPDR S&P 500, Expense Ratio 0.09%) for example, one quickly will see the differences generated from weighting an index by top line revenue instead of the traditional market capitalization weighting scheme. The top five holdings of RWL presently look like the following: 1) WMT (4.59%), 2) AAPL (2.22%), 3) BRK.B (1.99%), 4) XOM (1.97%), and 5) UNH (1.77%).

This is a much different picture from the top five within the S&P 500 and related market cap weighted trackers where AAPL is the top weighted member with a 3.33% weighting, followed by 2) MSFT (2.54%), 3) XOM (1.87%), 4) JNJ (1.73%), and 5) AMZN (1.69%). In the trailing one year, five year, and all-time performance since inception, RWL has displayed live out-performance to the S&P 500 Index and related tracker ETFs themselves, and we will look to cover other funds from this family in more depth in the future.

Disclaimer: The content of this article is excerpted from a daily newsletter from Street One Financial. While ETF Daily News may edit the contents and add a relevant title to the piece, the author, Paul Weisbruch, does not endorse or recommend any issuer or security mentioned herein.

About the Author: Paul Weisbruch

paul-weisbruchPaul Weisbruch is the VP of ETF/Options Sales and Trading at Street One Financial. Prior to joining the team at Street One, Paul served as the Director of RIA and Institutional ETF Sales at RevenueShares ETFs from December 2007 until November of 2009. Before RevenueShares, Paul was employed by Susquehanna International Group from 2000 until 2007 serving in roles including OTC/NYSE Institutional Block Trading, Nasdaq/OTC Market Making, ETF/Derivatives Intelligence and Strategy, Algorithmic Trading, as well as acting as the PHLX Floor Specialist in the ETFs, SPY and DIA.Paul has been actively involved in the ETF space from both a product and trading standpoint since 2000. Additionally, Paul has well forged relationships with national RIAs, institutional pension fund managers and consultants, mutual fund and hedge fund managers, and also the ETF media. Co-authoring the “S1F ETF Daily” since 2009, the daily piece has become a must for many portfolio managers in the ETF space, with segments regularly appearing in the likes of Barron’s, WSJ, and for instance.

He holds his Series 4 (Registered Options Principal), 6, 7, 55 (Equity Trader), 63, and 65 licenses. He graduated from the University of Pittsburgh (B.S. – Economics), graduating magna cum laude, and has an MBA from Villanova University.