Rainwater Equity ETF: Harnessing Recurring Revenue for Steady Growth

The Rainwater Equity ETF (RW), launched in June 2025, is the latest entrant in the actively managed ETF space, positioning itself as a tool for investors seeking predictable growth in an era of market volatility. Managed by Joseph R. Shaposhnik, a veteran investor with a proven track record, the fund focuses on businesses with recurring revenue models—a strategy designed to outperform traditional benchmarks while minimizing surprises. Here's why RW could be a compelling addition to long-term portfolios, and where caution is warranted.

The Recurring Revenue Advantage

At the heart of RW's strategy is its focus on companies that generate steady, predictable cash flows. These include software-as-a-service (SaaS) providers, subscription-based platforms, waste management firms, and regulated utilities—businesses where customers pay repeatedly over time. Unlike cyclical industries, these companies are less prone to sudden revenue drops, creating a moat against economic downturns.

Shaposhnik's approach targets firms with “durable” growth, such as Microsoft (MSFT), which derives over 90% of its revenue from recurring cloud services. shows how such models can deliver consistent gains. By concentrating on 20–30 high-conviction holdings, RW avoids the dilution of broad-market ETFs, aiming to compound returns through select winners.

A Proven Manager's Blueprint

Shaposhnik's credibility is bolstered by his success with the TCW Compounders ETF, which he managed for nearly a decade. During his tenure, the fund ranked as the top performer among 343 peers in its category, outpacing the S&P 500 by a significant margin. This track record suggests he can replicate—or improve upon—that success in RW.

The new fund's concentrated portfolio—top 10 holdings make up 54.1% of assets—is a direct extension of his hands-on, research-driven style. While this approach can amplify returns, it also raises concentration risk, a point we'll address later.

Tax Efficiency as a Compounding Tool

RW's ETF structure and long-term holding strategy are designed to minimize taxable events. With turnover under 10% annually, the fund avoids frequent trading, reducing capital gains distributions. This is critical for taxable accounts, where deferred taxes can eat into returns.

The tax efficiency extends to the portfolio itself: businesses with recurring revenue often reinvest profits back into growth, compounding shareholder value over time. Shaposhnik's emphasis on low volatility, high-margin companies further reduces the need for portfolio churn.

Risks on the Horizon

No strategy is without pitfalls. RW's $12.4 million in assets as of July 3, 2025, underscores its new fund status—a risk for investors, as performance in the first few years may not reflect long-term results. Additionally, its concentrated portfolio exposes it to larger swings if a key holding underperforms.

Geopolitical risks also loom: 35% of RW's portfolio is in foreign equities, which could face currency fluctuations or regulatory hurdles. The fund's expense ratio of 1.25% is higher than passive ETFs, though justified if active management delivers alpha.

Is RW Right for Your Portfolio?

RW shines as a core holding for investors willing to embrace concentrated, active management. Its focus on recession-resistant businesses aligns with a market increasingly wary of cyclical sectors. However, its high fees and new fund status make it a better fit for those with a multi-year horizon and the stomach for volatility.

For advisors, RW could complement index funds by adding a “compound growth” sleeve, though diversification remains key. Pairing it with broad-market ETFs or a dividend-focused fund could balance its risk profile.

Final Take

The Rainwater Equity ETF is a bold bet on the power of recurring revenue models—a strategy with a proven edge in volatile markets. While its concentrated approach and new status warrant caution, Shaposhnik's track record and the fund's tax-smart design make it a compelling option for investors seeking steady, long-term growth.

As with any actively managed fund, due diligence is essential. Review the prospectus for full details on risks and holdings, and consider RW as part of a diversified strategy. In a world where predictability is scarce, its focus on “durable” businesses may just be the antidote to uncertainty.