I think it's good to work on both things- sight words and phonics. Knowing alot of sight words will help the child read well and quickly. knowing phonics will help them sound out unfamiliar words.
I've made my son 10 sight words each week- we flip through them briefly. It's helped him ALOT with reading. He does one page out of a phonics book daily, which has also helped him read alot too. We use Middle Curriculum press for the phonics.