ETF Database » RWJ

Are Your Cap-Weighted ETFs Leaders Or Laggards?

Cathy Carlson — Tue, 13 Jul 2010 16:07:03 +0000

The rapid growth of the ETF industry in recent years has altered the investment landscape in more ways than one. The low expense ratios offered by most exchange-traded products have brought increased scrutiny on active managers and called into question their ability to add value to client portfolios. The immediate diversification offered by a basket of securities has caused some to shift away from the complex research associated with individual stock picking towards more macro analysis required for tactical strategies. And as indexes have evolved from hypothetical measures of performance to essentially investable assets, the methodologies utilized in the construction and maintenance of benchmarks have become increasingly important to investors [see our database of ETF indexes]. The first generation of equity ETFs was dominated by market capitalization-weighted strategies, a methodology that involves assigning a weight to each component based on the total value of its equity. Most of the assets [...]

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Beyond IWM: Five Intriguing Small Cap ETFs

Michael Johnston — Tue, 15 Jun 2010 20:50:30 +0000

Although most U.S. investors build their portfolios around a core of large cap domestic equities, small-cap firms, which generally have a market capitalization’s under $2 billion, are a vital component as well. Because small cap stocks tend to have smaller customer bases, shorter operating histories, and less cash on hand, they are often more volatile than their large cap counterparts. But because they possess greater growth potential, small caps also carry potential for greater returns. Many investors elect to complement large and mid cap equity positions in their portfolio with a small cap ETF that offers exposure to a diversified basket of stocks. The most popular ETF in the Small Cap Blend ETFdb Category is the iShares Russell 2000 ETF (IWM), a fund that is comprised of 2,000 of the smallest companies in the Russell 3000 Index. IWM’s broad-based exposure–both in terms of number of securities and sector weightings–has made [...]

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Revenue Weighted ETFs Continue Impressive Run

Michael Johnston — Tue, 30 Mar 2010 15:47:17 +0000

The rise of the ETF industry has changed a lot about the business of investing. It has altered the way investors look at expenses, making it difficult to justify handing over 200 basis points (or more) each year to an active manager who can’t regularly beat a benchmark. It has also expanded the universe of investable securities; asset classes that were once available only to the biggest and richest investors (such as hedge fund strategies and commodities) are now readily available to anyone with an online broker. ETFs have also changed the way investors look at indexes. When indexes were primarily benchmarks used to measure manager performance, few gave much thought to the rules or investment theses governing the construction and maintenance. But as indexes have evolved into (essentially) investable assets, the underlying methodologies have been more carefully scrutinized. As a result of this increased scrutiny, some of the flaws [...]

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Weighting Methodologies: An ETF Report Card

Michael Johnston — Tue, 27 Oct 2009 06:00:50 +0000

Advisors and individuals who favor a tactical asset allocation to investing have historically analyzed broad macroeconomic trends and statistics to identify asset classes and sectors poised deliver strong returns. In the early days of the ETF industry, this meant homing in on a certain sector or style and picking the fund that tracked that segment. But as the landscape has continued to evolve, asset class and investment style aren’t the only decisions investors face. Market capitalization weightings were once the only game in town, but in recent years alternative weighting methodologies have become more popular among investors who find flaws in a strategy that gives the most weight to the biggest companies. The vast majority of ETF assets is still in traditional market capitalization-weighted funds (and most of the largest and most popular ETFs fall into this category). But investors have embraced a number of other strategies in recent years, [...]

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This Week In ETFs: October 2nd Edition

Eric Dutram — Fri, 02 Oct 2009 19:51:31 +0000

It’s been an interesting week in the world of ETFs: The unemployment rate moved up to 9.8% and Rio De Janeiro won the 2016 Summer Olympics over Chicago. Here are the ETF Database staff picks of the week’s most important and interesting stories from around the Web: Will RevenueShares’ Outperformance Continue? at Index Universe: RevenueShares’ unique indexing model has lead to some outsized gains this year: its Small Cap Fund (RWJ) has more than twice the gain of the S&P Small Cap 600 Index, and many other RevenueShares funds have are well ahead of their market-cap weighted counterparts. Some argue that this indexing model allows “ETFs to capture alpha before the market-cap-weighted indexes adjust.” But others make the claim that RevenueShares ETFs have only gotten lucky because the revenue weighting skews the fund towards big firms with low profit margins that have weathered the recession better than most. The Definitive [...]

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Talking Revenue-Weighting, Alpha-Generating ETFs With Sean O’Hara

Michael Johnston — Wed, 16 Sep 2009 08:00:53 +0000

Sean O’Hara is the President of RevenueShares Investor Services. He recently took time out of his busy schedule to talk about weighting methodologies, alpha, and more with ETF Database. ETF Database: Market capitalization-weighted indexes are widely accepted and used among investors, but they aren’t without their flaws. Why might these cap-weighted indexes be less than ideal for benchmarking purposes? Sean O’Hara: Market cap-weighted benchmarks are price driven. There has been a lot of work done on the efficient market theory, and I think most investors would agree that over time the market is efficient, but in the short run it can be fairly inefficient. A cap-weighted index tends to push the highest price stocks to the largest weighting and the lowest price stocks to the smallest weighting. We believe that has some flaws in it. At RevenueShares, we rebalance the index on an annual basis to put the emphasis on [...]

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Revenue-Weighted ETFs: A New Twist On an Old Drink

Michael Johnston — Wed, 24 Jun 2009 09:00:01 +0000

As ETFs have become the investment vehicle of choice for an increasing number of asset managers and individual investors, the landscape continues to evolve, sometimes seemingly on a daily basis. The first ETFs to burst onto the scene generally tracked traditional asset classes and indexes. And while these “plain vanilla” funds remain among the most popular investor choices today (State Street‘s SPY, which tracks the S&P 500, is acknowledged as the first U.S. ETF, and today remains the largest and most actively-traded ETF), numerous funds tracking non-traditional assets and indexes have sprung up in recent years, expanding the reach of ETFs to nearly every corner of the investment sphere. Worth the Weight? The vast majority of ETFs on the market today track indexes constructed using traditional market capitalization-weighting methodologies. While market capitalization-weighted indexes have many advantages and are widely accepted and understood by investors, there are some drawbacks that have opened the [...]

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ETF Database » RWJ

Are Your Cap-Weighted ETFs Leaders Or Laggards?

Related Posts:

Beyond IWM: Five Intriguing Small Cap ETFs

Related Posts:

Revenue Weighted ETFs Continue Impressive Run

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Weighting Methodologies: An ETF Report Card

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This Week In ETFs: October 2nd Edition

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Talking Revenue-Weighting, Alpha-Generating ETFs With Sean O’Hara

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Revenue-Weighted ETFs: A New Twist On an Old Drink

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