Market capitalization weighting has been around since the birth of the S&P 500 in 1957, back when black-and-white televisions and rotary phones were still in vogue.
This method has been widely used by investors for nearly six decades, and it continues to be the way most value is measured. But tradition is not a sound strategy.
When you invest in funds weighted by market cap, you’re just buying an index with no methodology for how the underlying stocks are screened. When you buy the S&P 500, for example, you’re also buying all the emotion and panic in what the marketplace reflects.
We’ve found that using revenue and measuring a company’s top-line performance can be a great way to weight an index. Revenue doesn’t panic and cannot be manipulated. That’s why we believe revenue-weighted ETFs 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 Manager 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.