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Another Way to Skin the Mid-Cap ETF Cat


Mid-cap stocks have been solid performers for most of this year, helping turn investors attention to traditional cap-weighted exchange traded funds that track the well-known S&P MidCap 400 Index.

Alternatively-weighted mid-cap ETFs have impressed as well, including those that focus on dividends or profitability. “Constituents in the S&P Mid Cap 400 Index are expected to generate 20% earnings growth in 2014 and 18% growth in 2015. This is above the 8% and 11% growth expected for the S&P 500 Index,” S&P CapitalIQ recently said, indicating it could still be a good time for investors to consider a different spin on the traditional mid-cap ETF experience. [Alternative Mid-Cap ETF is a Winner]

One way of doing that is with the RevenueShares Mid Cap Fund (RWK) , which weights the members of the S&P MidCap 400 Index by top-line revenue.

Weighting by revenue makes sense because bigger revenues usually mean bigger profits and better businesses. Further, market cap doesn’t always reflect a firm’s underlying business value. [Revenue Weighting Works for These ETFs]

Other RevenueShares ETFs have proven the revenue weighting strategy can be beneficial for investors. For example, thanks to its massive utilities exposure, the RevenueShares Ultra Dividend Fund (RDIV) is one of this year’s top-performing dividend ETFs. [A High Yield Dividend ETF With Big Upside]

RWK is up 6.15% year-to-date, or about 30 basis points better than the largest ETFs that track the S&P MidCap 400 Index.

RWK has benefited from investors flocking to late-cycle, value sectors this year. The ETF is overweight the energy, materials and industrial sectors compared to the cap-weighted S&P MidCap 400, according to RevenueShares data.

Although RWK is also overweight consumer discretionary, the worst-performing S&P 500 sector this year, the ETF has survived the laggard status of financial services by being underweight that group by nearly 1,100 basis points compared to the S&P MidCap 400.

Of RWK’s top-10 holdings, a group that combines for 20% of the ETF’s weight, only two have traded lower this year. Of the remaining eight, seven have posted double-digit returns with several gaining more than 20%.

RWK has added $24.4 million in new assets this year.

RevenueShares Mid Cap Fund