Since the launch of the S&P 500 Index in 1957, the conventional wisdom has been that the best way to gain exposure to the entire market is to weight stocks by their market capitalization, or stock price multiplied by shares outstanding.
Portfolios weighted by market cap are widely used, but in our view, the biggest problem with this approach is they’re overexposed to pricey stocks and sectors, and underexposed to those that may be temporarily undervalued.
Fortunately, we’ve seen a recent evolution in how investors can pursue market returns through Smart Beta strategies. Such an approach breaks the link between market capitalization and weightings in portfolios by employing other weighting schemes with the goal of delivering better portfolio outcomes while mitigating risk.
We believe one of these fundamental strategies in particular―revenue-weighting―is an optimal way for investors to pursue returns. Watch the video above to learn more about why we believe revenue-weighted ETFs may hold great promise for investors.
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The alternate revenue-weighting approach employed by the Funds, while designed to enhance potential returns, may not produce the desired results. Because the Funds are rebalanced quarterly, portfolio turnover may exceed 100%. The greater the portfolio turnover, the greater the transaction costs, which could have an adverse effect on a Fund’s performance.
These views represent the opinions of the Portfolio Managers and are not intended as investment advice or to predict or depict the performance of any investment. These views are as of the publication date, and are subject to change based on subsequent developments.