ETF Of The Week: 'Reverse'-Cap Fund Sees Flows

December 06, 2019

Difference An ln(x) Makes

Weighting by ln(x) instead of 1/x has the effect of muting the impact of inversion, giving large  and midcap stocks greater weight in the index than they might otherwise have. As a result, SIZE's portfolio actually resembles that of an equal-weighted equity fund, just with a moderate weighting boost to smaller cap stocks.

For example, compare SIZE's sector weights against that of the iShares MSCI U.S.A. Equal Weighted ETF (EUSA), which equal-weights mostly large and midcap U.S. stocks:

Sector Breakdown Of SIZE vs. EUSA & RVRS
Financials 20.86% 20.51% 18.61%
Consumer Cyclicals 15.93% 16.37% 24.19%
Technology 15.40% 15.55% 9.90%
Industrials 14.90% 14.49% 14.80%
Healthcare 11.28% 10.97% 8.27%
Consumer Non-Cyclicals 5.81% 5.93% 6.92%
Basic Materials 5.15% 5.00% 6.24%
Utilities 5.07% 4.80% 4.24%
Energy 4.41% 5.23% 6.36%
Telecommunications 1.18% 1.13% 0.46%

Source:; data as of Dec. 5, 2019


Save for a meaningful difference in energy allocation, SIZE’s and EUSA's sector weights are almost identical, with weightings in the two funds falling within half a percentage point of each other. However, SIZE looks radically different from RVRS, its intended competitor, with nearly an 8% delta between the two ETFs in their consumer cyclical allocation.

The similarities don't stop there. Six of SIZE's top 10 stocks are the same as EUSA's, with roughly the same weights; but none of SIZE's top 10 overlaps with RVRS':

Top Ten Stocks & Weights
Bristol-Myers Squibb Company 0.22% Bristol-Myers Squibb Company 0.24% Coty Inc. Class A 1.22%
Alnylam Pharmaceuticals, Inc 0.21% Alnylam Pharmaceuticals, Inc 0.21% Las Vegas Sands Corp. 1.16%
TD Ameritrade Holding Corporation 0.20% Splunk Inc. 0.20% Nordstrom, Inc. 1.09%
Splunk Inc. 0.20% TD Ameritrade Holding Corporation 0.20% Capri Holdings Limited 0.90%
Paycom Software, Inc. 0.19% Paycom Software, Inc. 0.19% L Brands, Inc. 0.82%
Grubhub, Inc. 0.18% Sarepta Therapeutics, Inc. 0.18% Macerich Company 0.81%
Jazz Pharmaceuticals Plc 0.18% DexCom, Inc. 0.18% Affiliated Managers Group, Inc. 0.80%
Sarepta Therapeutics, Inc. 0.18% Charles Schwab Corporation 0.18% Leggett & Platt, Incorporated 0.80%
Jefferies Financial Group Inc. 0.18% Uber Technologies, Inc. 0.18% Gap, Inc. 0.79%
Ionis Pharmaceuticals, Inc. 0.18% Target Corporation 0.18% Cimarex Energy Co. 0.77%

Source:; data as of Dec. 5, 2019


Clearly, SIZE's investors don't seem to mind that the ETF is essentially an equal-weighted fund in disguise—and more power to them—but we see this as a clear example of why investors should check under the hood before they buy any fund, even if it means brushing up on high school algebra first.

Check Under The Hood

One last thing: Although SIZE has been on the market since 2013, the fund only switched to its current reverse-ln(x) methodology a year ago. Prior to Dec. 2018, SIZE instead tracked a low-volatility factor index.

Investors should keep this in mind when evaluating SIZE's historical performance, because any returns over a year old would be the result of low-volatility weighting, not inverse-weighting.

Contact Lara Crigger at [email protected]

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