In a new study, conducted in partnership with Lauren Cohen and Christopher Malloy of Harvard Business School and the National Bureau of Economic Research (NBER), we bring new evidence to bear on the optimal weighting of indexing strategies for those wanting broad-based exposure to equities in both the U.S. and abroad. In particular, we documented three main findings:
- Along with several other methodologies, revenue weighting has outperformed market-capitalization weighting in both absolute returns and return per-unit-risk over the past 40 years in the U.S.
- Revenue weighting provides more stable exposures to industries over this period.
- While the international evidence is more mixed, in developed markets and in the largest emerging market economies, revenue weighting appears to dominate market-cap weighting in terms of return and return per-unit-risk over the recent history through present-day.
Given the totality of evidence, revenue weighting appears to be a fitting alternative when considering an allocation to broad indexation approaches.
Read the research report to learn more about the potential benefits and considerations of revenue weighting, and how it compares with market-capitalization weighting and other alternative weighting schemes.
Mutual funds and exchange traded funds are subject to market risk and volatility. Shares may gain or lose value. Alternative weighting approaches (i.e., using factor weighting as a measure), while designed to enhance potential returns, may not produce the desired results.
These views represent the opinions of OppenheimerFunds, Inc. and are not intended as investment advice or to predict or depict the performance of any investment. These views are as of the publication date, and are subject to change based on subsequent developments.