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Earnings or Revenue-Weighted ETFs: Who Won in Q1?

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We are at the end of the Q1 earnings season. As of now, 98.6% of the S&P 500 companies have reported earnings for Q1, with a 24.3% year-over-year jump on 8.7% revenue growth. Almost 76.9% of the companies beat on earnings while 74.4% beat on revenues, per the Earnings Trends issued on May 31.

Coming to small-cap stocks, about 94.3% of the S&P 600 index has reported so far. Earnings are up 25.2% year over year on 9.4% revenue growth, with 55.6% beating EPS estimates and 72.1% surpassing top-line expectations.

Plus, revenue surprises are especially tracking above historical periods. For the quarter as a whole, total S&P 600 earnings are expected to increase 20.7% on 9% higher revenues (read: Solid Small-Cap Earnings Put Spotlight on These Sector ETFs).

Against such an earnings and revenue backdrop, let’s find out the ETFs — earnings or revenue-weighted — that were in the spotlight in the Q1 reporting cycle.

Oppenheimer S&P 500 Revenue ETF (RWL) Versus WisdomTree U.S. Earnings 500 Fund (EPS)

RWL: Stocks in the fund are graded on the basis of the top line. The top three holdings of the fund are Wal-Mart (4.1%), Apple (2.3%) and Exxon Mobil (2.1%). Consumer Cyclical (15.8%), Healthcare (15.2%) and Consumer Staples (14.9%) are three of the leading sectors. The fund charges 39 bps in fees.

EPS: It offers exposure to the broad U.S. large-cap companies that are profitable. The top three stocks are Apple (5.29%), Microsoft Corp (2.65%) and JPMorgan Chase (2.44%). The fund charges 28 bps in fees. Information Technology (25.2%), Financials (19.58%) and Healthcare (12.86%) round out the top three sectors.

S&P MidCap 400 Revenue ETF (RWK) Versus WisdomTree U.S. MidCap Earnings ETF (EZM)

RWK: The same revenue-weighted objective is applied here on the mid-cap level. Tech Data Corp. (2.4%), PBF Energy Inc. (2.4%) and World Fuel Services Corp. (2.2%) are the top three stocks here. The fund charges 39 bps in fees. Consumer Cyclical (18.6%), Information Technology (17.0%) and Industrials (16.4%) and are the top three sectors of the fund.

EZM: In this mid-cap earnings-focused ETF, Park Hotels & Resorts (2.24%), Macy's (1.13%) and Penn National Gaming (1.02%) hold the top three spots. Consumer Discretionary (23.18%), Industrials (18.13%) and Financials (16.6%) are three of the leading holdings in the fund. The fund charges 38 bps in fees.

Oppenheimer S&P SmallCap 600 Revenue ETF (RWJ) Versus WisdomTree U.S. SmallCap Earnings ETF (EES)

RWJ: This small-cap revenue-weighed fund has Intl. FCStone (4.0%), Supervalu (2.2%) and Community Health Systems (1.7%) as its top three holdings. Consumer Cyclical (26.4%), Industrials (20.7%) and Information Technology (11.3%) are the leading sectors of the fund. The net expense ratio of the fund is 0.39%.

EES: This earnings-weighted fund’s top three holdings are Match Group (1.64%), Warrior Met Coal (1.32%) and Kemet Corp. (1.28%). The fund charges 38 bps in fees. Financials (21.3%), Consumer Discretionary (19.92%) and Industrials (18.82%) are the leading sectors of the fund (read: Earnings-Weighted ETFs to Tap 7-Year Growth).

Bottom Line

From the given chart, we can see that the performance of both revenue- and earnings-weighted ETFs have been steady in the last one month, with revenue-weighted ones taking a slight upper hand. Solid beat ratios on the top line, both for large and small caps, have probably led to this trend.

Still, the difference was not prominent between revenue and earnings-weighted funds. What was a glaring takeaway in the recently concluded earnings season was the dominance of smaller caps over the larger ones, be it for revenues or earnings. Buoyancy in the U.S. economy, a stronger dollar, tax reform in the United States and geopolitical tensions have turned investors to domestically focused pint-sized stocks.

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OPP-SC REVENU (RWJ): ETF Research Reports
WISTR-US SC ERN (EES): ETF Research Reports
OPP-MC REVENU (RWK): ETF Research Reports
WISTR-US MC ERN (EZM): ETF Research Reports
OPP-LC REV (RWL): ETF Research Reports
WISTR-US ERN500 (EPS): ETF Research Reports
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