As the exchange-traded fund industry grows, fund issuers have developed creative new ways to maximize the returns of passive strategies. While non-traditional funds like Direxion Daily Financial Bull 3X Shares (FAS) and United States Natural Gas (UNG) have gained popularity among many investors willing to take on the risk, companies like RevenueShares, WisdomTree and PowerShares are seeking to put a new twist on traditional investing.
Shunning the popular market-cap weighting strategy employed by ETF giants like iShares and State Street (STT), RevenueShares and WisdomTree are looking to increase investor returns through strategies that weight factors like dividends, earnings and revenue. PowerShares offers a line of "Dynamic" ETF products that allocate assets using a combination of performance data.
In the last decade, cap weighting may have been king, but new breeds of funds have arrived. This article will be the first in a series that examines the alternative strategies to increase awareness of the growing ETF market.
RevenueShares applies a revenue-weighting strategy to traditionally cap-weighted indexes. By allocating assets by revenue, this firm seeks to "reduce the erosion of investor returns created by cap-weighting's tendency to overweight outlier firms in the index whose stock prices have been elevated to levels beyond the company's actual growth rate and also the tendency of cap-weighted indexes to underweight stocks that are experiencing cyclical setbacks."RevenueShares currently has six ETF products: RevenueShares Large Cap Fund (RWL ), RevenueShares Mid Cap Fund (RWK), RevenueShares Small Cap Fund (RWJ), RevenueShares Financial Sector Fund (RWW), RevenueShares ADR Fund (RTR) and RevenueShares Navellier Overall A-100 Fund (RVW). The "core index" ETFs of RWL, RWK and RWJ are rebalanced annually while the specialty indexes are rebalanced quarterly.