“We concluded that whatever the S&P is doing, it’s doing it well,” Lowry says. “And we further concluded that the only way to beat the market is to beat the index that is the market.”
Lowry wanted to avoid the perceived shortcoming of cap-weighted indexes, and he zeroed in on revenue as a true measure of a company’s economic value. “A revenue- weighted strategy forces investors to purchase more shares of stocks with low price-to-sales ratios and fewer shares of stocks with high price-to-sales ratios than other strategies,” he says. “Over time, this strategy results in outperformance.”
He backtested his thesis with S&P, and the two inked an agreement that allows RevenueShares to launch revenue-weighted funds based on S&P indexes. The first three RevenueShares funds––RevenueShares Large Cap Fund (RWL), RevenueShares Mid Cap Fund (RWK) and RevenueShares Small Cap Fund (RWJ)––launched in February 2008, and had time to gain traction before the market crashed.
Through this year’s third quarter, all three funds have outperformed the S&P indexes they’re based on since inception and during the year-to-date, one-year, three-year, five-year time frames. They’ve all attracted at least $150 million in assets. RWK and RWJ have expense ratios of 0.54 percent, while RWL is 0.49 percent.
Three other funds––RevenueShares Financials Sector Fund (RWW), RevenueShares ADR Fund (RTR) and RevenueShares Navellier Overall A-100 Fund (RWV)––launched during the teeth of the recession in late-2008 and early-2009 and have lacked the broad-based success of the older funds.
RTR has underperformed the S&P ADR index since inception, whereas RWW and RWV have outperformed their related benchmark S&P indexes. Both RWW and RTR sport expense ratios of 0.49 percent, and have attracted $30 million and $23 million in assets, respectively. The Navellier fund has an expense ratio of 0.60 percent, and has attracted only $7 million in assets.
“RWV is a niche play for momentum managers,” says Lowry, noting that momentum has been a tough place to be in recent years.
RevenueShares believes it’s the only ETF sponsor whose core investment strategy is based on revenue weighting. Robert Goldsborough, an ETF analyst at Morningstar, won’t quibble with that assessment. “There’s no question they’ve carved a distinctive niche in the marketplace,” he says.
From Cop To China
Lowry earned a B.S. degree in political science and an MBA from St. Joseph’s University in Philadelphia. But before he began his career in financial services, he spent 12 years with the Philadelphia police department where he patrolled the streets before getting promoted to sergeant in the detective bureau and later developing a police academy training program on when officers should or shouldn’t shoot.