Earnings Vs. Revenue Weighted ETFs

The earnings recession in the U.S. corporate world has been prevalent for quite some time now. As per the Earnings Trends report issued on August 24, 2016, we have not seen positive earnings growth for the S&P 500 over the last five quarters and are likely to see a decline in the ongoing third quarter as well. Relatively higher greenback, (though the strength has diminished slightly in recent times), global growth concerns and persistent pricing concerns in the oil patch led to such weakness (read more: Earnings Recession Put These ETFs in Focus).

As of now, as much as 96.9% of the S&P 500 companies have reported earnings, with a 3% dip in year-over-year earnings growth on 0.4% decline in revenues. In fact, investors should note that revenue weakness seen in recent times is not as grave as earnings'. In Q1 as well, earnings plunged 6.5% while revenues dipped 1%. For the upcoming Q3 earnings season, earnings are expected to slide 2.8% while revenues are likely to expand 1.5% (read more:Follow Goldman Sachs' Strategy with These ETFs).

This is a fairly good indication because sales are harder to be influenced in an income statement than earnings. A company can come up with decent earnings by adopting cost-cutting or some other measures which do not speak for the companies’ core strength. However, it is difficult for a company to mold revenue figures.

In such an earnings-revenue backdrop, let’s take a look at which ETFs, earnings-weighted or revenue-weighted, grabbed the spotlight in the Q2 earnings season.

Oppenheimer Large Cap Fund RWL Versus WisdomTree Earnings 500 Fund EPS

RWL: Stocks in the fund are graded on the basis of the top line. The top three holdings of the fund are Wal-Mart (4.57%), Apple (2.34%) and Exxon Mobil (2.01%). Consumer cyclical (22.07%), consumer non-cyclical (21.46%) and financials (12.03%) are three of the leading sectors. The fund charges 49 bps in fees.

EPS: It offers exposure to broad U.S. large cap companies which are profitable. The top three stocks are Apple (5.02%), Berkshire Hathaway (2.52%) and JPMorgan Chase (2.51%). The fund charges 28 bps in fees. Financials (21.76%), IT (20.38%) and Consumer Discretionary (11.39%) round out the top three sectors.

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