Indexing has delivered profound benefits to investors through low-cost, diversified and tax-efficient access to markets. Traditionally, equity indexing has weighted companies by their market capitalization.

But market-cap weighting suffers from a significant limitation: It can be influenced by investor sentiment, which drives certain companies to be over or underweight in an index without considering their underlying fundamentals.

In an effort to overcome this limitation while still monetizing the benefits of indexing, investors can consider strategies that weight an index’s constituents according to fundamental criteria, such as dividends, earnings, or revenues.

Revenue—as opposed to, say, earnings—is less influenced by accounting practices and could therefore serve as a truer indicator of a company’s health and business potential. Additionally, unlike dividends, revenue is not subject to management decisions.

Here we address the benefits of revenue weighting as an alternative to market-cap weighting.

  1. Coverage
    Broad market coverage with greater exposure to attractively valued companies

      A revenue-weighted portfolio offers the same broad coverage of the market, and it also results in greater exposure to stocks with attractive valuations. That exposure is routinely maintained through the discipline of quarterly rebalancing.
      At the same time, revenue weighting still provides exposure to growth companies but does so at weights determined by their revenue, not their stock price.

  2. Fundamentals
    Anchored by fundamentals, not investor sentiment

      Since it’s not swayed by stock prices, revenue weighting mitigates overexposure to potentially overvalued stocks and maintains more consistent sector representation over time.

  3. Outperformance
    Strong historical long-term outperformance

      Over the past 10 years, the Oppenheimer S&P 500 Revenue ETF (RWL), S&P MidCap 400 Revenue ETF (RWK), and S&P SmallCap 600 Revenue ETF (RWJ) have each outperformed their market-cap benchmarks.

Anchor Your Portfolio with Revenue-Weighted ETFs