Earnings Or Revenue-Weighted ETFs: Finding The Q2 Winner

The earnings season is in full swing. Out of 350 members from the S&P 500 index that have reported already, 74% beat on bottom line and 68% surpassed revenue estimates, as per the latest Earning Trends. Growth appears slightly weaker than the prior period, but beat ratios emerged stronger, especially on the top line.

As per an article published on Financial Times, revenue growth at blue-chip U.S. companies like JPMorgan, Visa and Caterpillar (NYSE:CAT) beat analyst expectations at almost the decade-best rate (read: 4 Sector ETFs Winning on Revenue Growth).

As of now, as much as 70% of the S&P 500 companies have reported earnings, with an 11% year-over-year jump on 5.9% revenue growth. In fact, investors should note that revenue expansion for the upcoming period is better than earnings expansion. For the upcoming Q3 earnings season, earnings are expected to grow 4.5% while revenues are likely to expand 4.6%.

Against such an earnings and revenue backdrop, let’s find out which ETFs — earnings-weighted or revenue-weighted — grabbed the spotlight in the Q2 reporting cycle.

Oppenheimer Large Cap Fund (BE:RWL) Versus WisdomTree Earnings 500 Fund (TO:EPS)

RWL: Stocks in the fund is graded on the basis of the top line. The top three holdings of the fund are Wal-Mart (NYSE:WMT) (4.7%), Berkshire (2.3%) and Apple (NASDAQ:AAPL) (2.2%). Consumer cyclical (16.2%), healthcare (14.9%) and consumer staples (14.9%) are three of the leading sectors. The fund charges 49 bps in fees (read: S&P 500 ETFs Face Off: SPY (NYSE:SPY) Versus IVV).

EPS: It offers exposure to broad U.S. large cap companies which are profitable. The top three stocks are Apple (5.95%), Berkshire Hathaway (NYSE:BRKa) (2.43%) and JPMorgan Chase (NYSE:JPM) (2.24%). The fund charges 28 bps in fees. Information Technology (22%), Financials (19.99%) and Health Care (13.34%) round out the top three sectors (read: Why You Should Bet on Blue Chip ETFs Now).

Oppenheimer Mid Cap Fund RWK Versus WisdomTree MidCap Earnings ETF (SNX:EZM)

RWK: The same revenue-weighted objective isapplied here on the mid-cap level. World Fuel Services Corp (2.3%), Tech data Corp. (2.3%) and Arrow Electronics (2.0%) are the top three stocks here. The fund charges 39 bps in fees. Information Technology (18%), Industrials (16.8%) and Consumer cyclical (16.7%) are the top three sectors of the fund.

EZM: In this mid-cap earnings-focused ETF, USG Corp (1.07%), Office Depot Inc (0.92%) and United Therapeutics Corp (0.91%) hold the top three spots. Industrials (20.45%), Consumer Discretionary (18.88%) and Financials (15.8%) are three of the leading holdings in the fund. The fund charges 38 bps in fees.

Oppenheimer Small Cap Fund RWJ Versus WisdomTree SmallCap Earnings ETF EES

RWJ: This small-cap revenue-weighed fund holds Intl. FCStone (2.6%), Core-Mark Holding Co Inc (2.1%) and J.C. Penney Co. (1.8%) as its top three holdings. Consumer cyclical (28.7%), Industrials (22.2%) and Health Care (10.9%) are the leading sectors of the fund. The net expense ratio of the fund is 0.39%.

EES: This earnings-weighted fund’s top three holdings are Meritor Inc (2.45%), Premier Inc (1.52%) and American Axle & Manufacturing (0.78%). The fund charges 38 bps in fees. Consumer Discretionary (22.28%), Financials (21.6%) and Industrials (19.87%) are the leading sectors of the fund.

Bottom Line

From the chart given above, we can see that the performance of the revenue-weighted ETFs lagged earnings-weighted ETFs. This could be due to the fact that those revenue-weighted funds mostly stress on the top revenue generating companies and not on the growth perspective. However, we can see that the performance of the large-cap revenue-weighted ETF was better than the other two segments – mid and small caps.

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