Exponential ETFs launches reverse cap weighted S&P 500 ETF

Nov 2nd, 2017 | By | Category: Equities

Exponential ETFs has unveiled the Reverse Cap Weighted US ETF (CBOE: RVRS), providing exposure to S&P 500 equities weighted by the inverse of their relative market capitalization.

Phil Bak, CEO of Exponential ETFs

Phil Bak, CEO of Exponential ETFs.

RVRS tracks the Reverse Cap Weighted US Large Cap Index, comprised of all 500 publicly-traded companies in the S&P 500. However, contrary to most cap-weighted funds that skew their portfolio weightings in favour of larger companies, RVRS instead is overweight the smaller companies of the US bellwether index. The index is rebalanced quarterly in March, June, September and December.

The strategy brings the weighted average market capitalization of the index down from $162 billion to $16bn.

“Market capitalization weighting exposes investors to a concentrated portfolio and an extreme bias toward mega-capitalization companies, which can result in returns being left on the table,” said Exponential ETFs CEO Phil Bak. “With RVRS, we’re solving this problem and providing a tool for investors to balance out their exposure within their large cap US allocation.”

“Exponential ETFs is dedicated to providing quality instruments that allow investors to express their market outlook,” added Kevin Quigg, chief strategist at Exponential ETFs. “RVRS seeks to accomplish this by opening up a previously inaccessible market factor (size) within a space (US large capitalization) that dominates most investors’ equity exposure.”

Using back-tested data, the index has a ten-year annualized return of 10.3%, with an annualized standard deviation of 22.1%. In comparison, the cap-weighted S&P 500 has returned just 7.5% per annum over the same period, although its volatility is a lot less with an annualized standard deviation of 15.2%.

The largest sector exposures of the reverse cap weighted index are consumer discretionary (20.9%), industrials (14.8%), financials (12.8%), information technology (12.0%) and health care (9.3%). In contrast, the cap-weighted S&P 500 has a much larger exposure to information technology (24.5%) and a far lesser weighting to consumer discretionary (11.9%). The weightings for financials (14.7%), health care (14.0%) and industrials (10.0%) are broadly in line with the reverse cap-weighted index.

The fund has a total expense ratio (TER) of 0.29%.

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