RevenueShares Investor Services rebalanced its exchange-traded funds in late December by weighting the constituent stocks of each fund’s S&P benchmark by the revenue generated in the prior four quarters.
Shares ETFs posted strong performance versus their S&P benchmarks, a potential signal to investors that companies with relatively lower price-to-sales ratios have historically rewarded investors in a period of stock market recovery.
Price-to-sales is calculated by dividing a stock’s current price by its revenue per share for the trailing 12 months.
The significance of the RevenueShares ETFs rebalancing, which covers a total of six offerings, is that the new weightings continue to favour companies that grew their top line revenue whose share price growth has lagged their revenue growth, as opposed to those companies and sectors that may have strengthened their earnings by simply cutting costs.
RevenueShares says the revenue-weighted strategy also institutionalises the “buy low, sell high” strategy, which runs counter to the tendency of market cap-weighted indexes to naturally overweight stocks that have run up and underweight those whose share prices have gone down.
“Rebalancing the S&P indexes annually by company revenue reinforces the conventional wisdom of reallocating assets from sectors and stocks with high price to sales ratios to those with low price to sales ratios,” says Sean O’Hara, president of RevenueShares. “Revenue growth has historically been a strong indicator of company performance and this strategy may allow investors to capitalize during a recovery period when company revenues take on added significance.”
The funds that were rebalanced are: RevenueShares Large Cap Fund, RevenueShares Mid Cap Fund, RevenueShares Small Cap Fund, RevenueShares Financial Sector Fund, RevenueShares ADR Fund and RevenueShares Navellier Overall A-100 Fund.
