Although cap weighted ETFs still dominate the marketplace, investors have witnessed a rise in ‘alternative’ weighting methodologies as of late. These include funds that weight based on revenues, dividends, or any number of other fundamental metrics.
Revenue weighted ETFs have emerged as a competitor in the space, but these funds rarely get the respect they deserve from investors. This is despite the fact that there are some solid ideas backing up the revenue weighting model, and especially when compared to cap weighted products (see Revenue Weighted ETFs Crushing the Market).
After all, many believe that revenues are harder to fake or alter than company earnings on a quarter by quarter basis. Furthermore, cap weighted products tend to put the most weight into companies that have seen surging stock prices, a situation that revenue-weighting can avoid. Plus, many revenue weighted products have outperformed their cap weighted counterparts, leading further credence to the idea that this is a superior weighting methodology.
How to Play
Investors have a few choices in this space, but two great options are the RevenueShares Large Cap ETF (RWL - Free Report) and the RevenueShares Small Cap Fund (RWJ - Free Report) . Both of these funds have Zacks ETF Ranks of 2 (Buy), while they have crushed their market cap weighted counterparts in the process over the past five years too (See all the top Ranked ETFs here).
For more on these funds, make sure to watch our short video on the subject below:
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>