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Earnings vs. Revenue Weighted ETFs: Q1 Winner

Sanghamitra Saha

So far, 90.8% of the S&P 500 companies have reported results for Q1, highlighting a 0.5% year-over-year jump in earnings on 5% revenue growth. Almost 76.9% of the companies beat on earnings while 59% surpassed the revenue mark, per the Earnings Trends issued on May 15.

In such an earnings-revenue backdrop, let’s take a look at which ETFs, earnings or revenue-weighted, won this earnings season.

Oppenheimer S&P 500 Revenue ETF RWL) (down 1.9%) Versus WisdomTree U.S. Earnings 500 Fund EPS (down 2.4%)

RWL: Stocks in the fund are graded on the basis of the top line. The top three holdings of the fund are Wal-Mart (4.3%), Apple (2.3%) and Exxon Mobil (2.2%). Healthcare (16.1%), Financials (13.2%), Consumer Cyclical (13.1%) and Consumer Staples (12.7%) are four 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 (5.08%), Microsoft Corp (2.92%) and Berkshire Hathaway (2.58%). The fund charges 8 bps in fees. Financials (21.74%), Information Technology (20.8%), Communication Services (10.63%) and Healthcare (10.30%) round out the top four sectors.

S&P MidCap 400 Revenue ETF RWK) (down 5.9%) Versus WisdomTree U.S. MidCap Earnings ETF EZM (down 4.3%)

RWK: The same revenue-weighted objective is applied here on the mid-cap level. World Fuel Services Corp. (2.9%), Tech Data Corp. (2.6%) and PBF Energy Inc. (1.9%) are the top three stocks here. The fund charges 39 bps in fees. Industrials (18.8%), Consumer Cyclical (18.4%) and Information Technology (16.1%) are the top three sectors of the fund.

EZM: In this mid-cap earnings-focused ETF, Pulte Homes (1.01%), Huntsman (0.77%) and Chemours Co/The (0.71%) hold the top three spots. Industrials (19.77%), Financials (18.95%) and Consumer Discretionary (15.73%) are three of the leading holdings in the fund. The fund charges 38 bps in fees.

Oppenheimer S&P SmallCap 600 Revenue ETF RWJ) (down 4.9%) Versus WisdomTree U.S. SmallCap Earnings ETF EES (down 4.8%)

RWJ: This small-cap revenue-weighed fund has Core-Mark Holding (2.06%), Lithia Motors (1.97%) and Group 1 Automotive (1.84%) as its top three holdings. Consumer Cyclical (27.6%), Industrials (20.2%) and Information Technology (12.2%) 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 Bed Bath & Beyond (0.9%), Lithia Motors (0.9%) and Warrior Met Coal (0.9%). The fund charges 38 bps in fees. Consumer Discretionary (23.39%), Financials (21.1%) and Industrials (19.75%) are the leading sectors of the fund.

Bottom Line

From the chart given above, we can see that the performance of the earnings-weighted ETFs lagged revenue-weighted ETFs for large-caps. But for the other two capitalization, revenue-weighted ETFs underperformed despite stronger growth rates in the top line.

Notably, revenue growth is expected to hit 4.8% in Q1 for the S&P 600 — an index gauging smaller-caps — while earnings growth is expected to be negative 19.4%. This could be due to the fact that revenue-weighted funds mostly stress on the top revenue-generating companies and not on the growth perspective.