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The U.S. exchange traded funds landscape is largely dominated by passive, domestic equity funds and of that group, the bulk are weighted by market capitalization.
Although there are some risks associated with weighting stocks by market value, it is efficient, helps keep fund costs low and taps into the collective wisdom of market participants. It’s also easy for even novice investors to understand.
However, if there’s one thing the ETF industry is more than competent at, it’s finding different ways to skin the same cat. There are equity ETFs that are equally weighted, those that use factor scoring, others using dividend yield and on and on. Point is not all equity funds need to be weighted by market capitalization and they’re not. Some even take more novel approaches than those just mentioned.
The newly minted Global X S&P 500 U.S. Revenue Leaders ETF (EGLE) and the Global X S&P 500 U.S. Market Leaders Top 50 ETF (FLAG) are part of that club and either could prove relevant in the current market environment.
Examining EGLE
Amid tariff-induced volatility, EGLE could be an example of a well-timed new ETF. It follows the S&P 500 U.S. Revenue Leaders Index – a subset of the S&P 500 that mandates member firms generate at least half their sales in the U.S.
That doesn’t mean EGLE is boring or skimps on growth stocks. Microsoft (NASDAQ: MSFT) and Amazon (NASDAQ: AMZN) combine for over 15% of the ETF’s weight, but other members of the magnificent seven don’t reside in the rookie ETF because those companies are more revenue-dependent on international markets.
“From that initial universe, S&P applies a screen to exclude any company that generates the majority of its revenue from outside the United States,” according to Global X research. “By tracking the resulting index, EGLE offers investors a vehicle to take a selective approach to U.S. equity investing. This approach accounts for not just the trends in globalization that have taken place in recent decades but also offers the potential to reduce some specific risks that can stem from global revenue exposure.”
It’s not just tariffs that make EGLE a relevant consideration today. It’s the extent to which the U.S. companies invest in this country, doing so at rates that far exceed those of their counterparts in other developed nations. Technology, which EGLE taps into, is part of that trend.
“First are technology investments, as U.S. domiciled hyperscalers have poured over $750b into capital expenditures since 2020,” notes Global X. “This includes massive data centers and the chips to power them, as well as research and development investments to improve their respective suites of large language models.”
Flying the FLAG
The Global X S&P 500 U.S. Market Leaders Top 50 ETF (FLAG)is also a valid idea against the current backdrop because, in simple terms, it builds on the EGLE approach. FLAG follows the S&P 500 U.S. Revenue Market Leaders 50 Index, which is a collection of the top 50 S&P 500 member firms that generate at least half their sales in the U.S.
What could make FLAG appealing and potentially an all-weather idea is its integration of quality metrics, including sustained free cash flow (FCF) margin, sustained return on invested capital (ROIC), and market share. That implies the FLAG roster could prove durable against trade war calamity.
“Sustained ROIC and FCF are empirically supported quality metrics that help identify companies that consistently generate shareholder value while maintaining resilient earnings,” concludes Global X. “Quality as a factor is often employed within a portfolio in an effort to reduce the impact of bear markets, as companies with strong internal cash flow generation and strong balance sheets can often better withstand poor economic conditions than peers.”
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