Daily Money Tip: Detecting revenue growth as a means to a gain

Focusing on revenue more closely reflects growth, says Vincent Lowry.
Focusing on revenue more closely reflects growth, says Vincent Lowry. (CNBC video)
Posted: January 28, 2014

Vincent Lowry, a onetime Philly police detective, switched over to Wall Street decades ago. Now he is capturing the stock market's gains in what he believes is a smarter way.

Lowry founded his own firm in 2004 in the old IBM building at 2005 Market St. and launched RevenueShares in 2008 to create new-fangled, exchange-traded funds (ETFs) based on revenue growth.

His index fund ETFs differ in a key respect: He starts with the Standard & Poor's index benchmarks, but then weighs the public companies based on revenue, rather than market capitalization or earnings.

Lowry created RevenueShares Small Cap (RWJ), RevenueShares Mid Cap (RWK) and RevenueShares Large Cap (RWL), which charge fees of 0.49 percent to 0.54 percent of funds under management annually. Lowry personally owns RWJ and RWL.

As for last week's stock-market correction, Lowry was expecting a "jolt" sometime between now and June.

"We're in a new secular bull market, but I've been expecting a correction of between 4 and 8 percent," he said.

RevenueShares ETFs more closely reflect the growth in the broader economy, rather than the distortions of cash flows and earnings of public companies, Lowry says. The S&P 500 companies' revenues should grow 4 percent to 5 percent in 2014, and GDP could hit 3 percent, he added.

"On a price-to-sales basis, the market is extremely cheap," Lowry estimated.

Since 1968, revenue for member companies of the S&P 500 index has fallen only five times, while the stock market itself was down 13 times in the same period.

"Stick with revenues," Lowry instructs, as an indicator of the market's health.

"We're currently in a new secular bull market, which started back in 2009. But there will be corrections," he predicted.

Lowry says he expects there could be another sharp correction after President Obama's second term ends in 2014, as there were after the second terms of Presidents Eisenhower, Nixon, Reagan, Clinton, and George W. Bush.

Local money managers such as Cumberland Advisors' David Kotok own RevenueShares Small Cap ETF, as well as PowerShares Dynamic Market Portfolio (PWC), Guggenheim S&P 500 Equal Weight ETF (RSP), the Russell 2000 Growth Index (IWO), and Guggenheim S&P 500 Pure Value ETF (RPV).

Research Affiliate's Rob Arnott ranks index funds' book values, cash flows, and sales and dividends.

But, Lowry said, "I think I've built a better mousetrap."


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