One way to reduce tech-heavy concentration, without sacrificing quality or growth, is by considering revenue-weighted ETFs. Unlike traditional market-cap strategies that give the most influence to the biggest companies, revenue-weighting prioritises firms with solid underlying business performance, not just soaring share prices. In today’s market, where a small group of mega-cap tech stocks dominate U.S. indexes, this approach can help restore balance. It also naturally increases exposure to sectors such as healthcare, financials, and consumer staples, where revenue growth tends to be more stable and valuations more reasonable.
One good vehicle to access this theme is the Invesco S&P 500 Revenue ETF (RWL), which has grown to over $10 billion in assets under management with its rules-based approach to reconstructing the S&P 500 Index. RWL examines the same 500 stocks in the parent index and weights them according to total earned revenue for each individual company. The components are also capped at a maximum 5% weighting per company to eliminate any single stock overtaking its peers. The result is a diverse portfolio with distinctly different sector attributes than the market-cap-weighted benchmark. The revenue weighting also minimises allocations to technology, communications services, and real estate on a relative basis. Recently, the growth-heavy S&P 500 has led the way lower, with RWL demonstrating moderate volatility characteristics.
- The ETF holds 505 stocks, with its 5 largest positions currently Amazon, Apple, McKesson, CVS Health and Cencora.
- It has an impressive $10.7bn market cap, while its fees are reasonable at 0.39%.
- Note this ETF is not hedged, so local investors are carrying $US exposure.
The ETF has tracked the revenue-weighted S&P 500 index very well over the years, reducing the volatile impacts of stocks such as Nvidia in both directions.
- We can see the RWL ETF outperforming the S&P 500 over the coming quarters as the “AI Trade” finds a new valuation equilibrium.
