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RevenueShares Global Revenue Weighted ETF Hits the Market - ETF News And Commentary

Sweta Killa

RevenueShares, known for its niche and unique strategies, expanded its pioneered revenue-weighted ETFs lineup last week to eight with the introduction of RevenueShares Global Growth Fund (RGRO).

Revenue-weighted ETFs are funds that include top revenue producing stocks rather than market capitalization. Revenues are a better indicator of a company’s financial health and are difficult to manipulate. This is because market capitalization weighted products are not more often than not inefficient investments. These products tend to put the maximum weight into bigger and often over-priced companies that have seen surging stock prices, thereby leading to inaccurate measures. Further, many companies use accounting tricks to flatter earnings.

In contrast to this, the strategy to weigh stocks by revenue seems one of the most effective fundamental factors for weighting the index holdings.

RGRO in Focus

This new ETF looks to track the S&P Global Broad Market Index, before fees and expenses. The benchmark first identifies top five developed and top five emerging markets that have the highest year-over-year GDP growth in the two most recent quarters. Highest GDP growth signifies improving revenues. It assigns 10% weight to each country and then screens for the top 10 revenue producing stocks from these selected countries.

This results in a broad basket of under 100 global securities with the energy sector accounting for one-fourth of the portfolio. Industrials, consumer staples and materials occupy the next three spots with double-digit allocation. The product is a bit diversified across various components with Statoil and PTT taking at least 5% share each. The top three countries are Hong Kong, Norway and Denmark (read: Short Foreign Stocks with These ETFs).

The fund focuses more on large caps with 72% share while mid caps account for 16% of assets. It charges 70 bps in annual fees and expenses.

How Does it Fit in a Portfolio?

This ETF could be an intriguing choice for investors seeking a new take on global investing. It also could be appropriate for investors seeking to apply the revenue-weighted model with growth focus, something that wasn’t really available until now.

Though the new fund seems pricier than other global products in the space, it seeks to offer exposure to countries with a strong relative momentum. Further, a combination of large cap and growth stocks provide a nice capital appreciation opportunity. This is especially true, as large caps tend to be the most stable in an adverse economic scenario while also offer capital appreciation in a booming market. And, honing in on growth securities in this capitalization level ensures higher returns.

However, investors should note that the fund is vulnerable to currency risk as it is exposed to assets dominated in a number of currencies. Currently, currency risk is on the rise with the global economy choosing monetary easing in contrast to the U.S. As a result, major currencies are slumping against the greenback, suggesting that investors should have patience for extreme currency volatility (read: 3 ETFs to Fight Against Global Currency War).

ETF Competition

While the new product doesn’t have a direct contender using the revenue-weighted strategy, there are a number of products that could give tough competition to the new global fund.

Vanguard FTSE All-World ex US Index Fund (VEU) dominates the global space with AUM of $12.7 billion. The fund holds 2463 securities in 46 countries, from both developed and emerging markets. It charges investors 15 basis points a year in fees for this service.

Other big funds include iShares MSCI ACWI Index Fund (ACWI), Vanguard Total World Stock ETF (VT), Vanguard Total International Stock ETF (VXUS) and iShares S&P Global 100 Index Fund (IOO). All of these funds have more than $1.5 billion in AUM, and plenty of volume too, so they could make RGRO’s quest for assets quite difficult (see: all the World ETFs here).

However, investors seeking for a global exposure could find the new product worthwhile given its unique focus on revenue-weighted model with a growth tilt in number of growing countries.  

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VANGD-FTSE AWLD (VEU): ETF Research Reports
ISHRS-MSCI ACWI (ACWI): ETF Research Reports
VANGD-TOT W STK (VT): ETF Research Reports
VANGD-TOT ISIF (VXUS): ETF Research Reports
ISHARS-GLBL 100 (IOO): ETF Research Reports
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