Bargain-priced shares in small companies have been on a tear lately. The S&P SmallCap 600 Value Index has climbed 72% over the past 12 months. Invesco S&P SmallCap 600 Revenue ETF (RWJ) has done even better, gaining 113%.
The exchange-traded fund's (ETF) holdings are weighted by revenues, rather than market value, which helps to "exploit the concept of buy low, sell high," says Invesco's Nick Kalivas.
No matter the reason that stocks run up in price, every three months the fund rebalances based on revenue. That shields the ETF some from fad investing trends. For example, after gaining more than 5,000% over the past 12 months, GameStop (GME) is the top holding of the fund's parent index, the market-value-weighted S&P SmallCap 600. In the ETF, GameStop ranks 30th.
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The fund is well positioned for economic growth. Consumer discretionary companies – makers of nonessential consumer goods and services – compose 27% of the fund’s assets, which is 12 percentage points more than its typical peer.
Some consumer discretionary stocks, including Macy's (M), a top-10 holding in the ETF, have logged triple-digit gains over the past year. Still, BofA Global Securities strategist Jill Carey Hall counts consumer discretionary as one of her favorite sectors these days. And small-company stocks "look inexpensive" next to large companies, she says.
This ETF is high on returns and high on volatility. It boasts a three-year, 20.1% annualized return that beat 99% of its peers.
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