The case for investing in dividend-paying companies is well known, and these stocks may have a beneficial impact on the portfolios of investors who are seeking income.
We employ a dynamic, rules-based investment process to access these opportunities. Taking the S&P 900 as a selection universe, we select the 60 highest-yielding stocks in the index. We then weight these stocks by revenue (instead of market capitalization) to provide investors with a balanced approach to dividend investing.
Revenue weighting enables us to overweight dividend stocks with attractive fundamentals, and within sectors, we believe weightings are optimized.
The Oppenheimer Ultra Dividend Revenue ETF Construction Process
Our selection universe is the S&P 900. We use a two-factor model in the portfolio construction process, analyzing both dividends and revenue. The initial screen helps us find consistent dividend payers, as it takes into account the trailing 12-month dividend yields at the end of the previous four quarters. We then average those four trailing data points, and the 60 stocks with the highest yields constitute the portfolio.
Next, we apply our standard methodology of weighting each stock by its revenue, and cap the weighting of each stock at 5% of the total portfolio to avoid overexposure to any particular company. By using the S&P 900 as a universe, we avoid the behavioral bias in the market that tends to lead investors predominately to large-cap stocks in the search for consistent dividends. Our revenue-weighting methodology, combined with our dividend screen, may lead to a more attractively valued dividend portfolio.
Ultra Dividend Revenue ETF Sector Breakdown
To meet their objective of delivering a high yielding product, high-yield dividend funds are generally concentrated in the following sectors:
We believe our universe of stocks (the S&P 900), the trailing yield screen and the revenue-weighting methodology have the potential to produce a product that protects investors from overvalued, dividend-paying stocks and potentially helps reduce portfolio risk.
Our screening process is dynamic, and the Fund invests in stocks across multiple industries. Because we adhere to a rules-based investment process, as stocks become overvalued and their yield dilutes, they naturally fall out of the selection process.
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An investment in the Fund is subject to investment risk, including the possible loss of principal amount invested. There is no guarantee that the issuers of stocks will declare dividends in the future, or that dividends will remain at their current levels or increase over time. The Fund is classified as a “non-diversified” fund and may invest a greater portion of its assets in the securities of a single issuer. Investing significantly in a particular region, industry, sector or issuer may increase volatility and risk. Fund returns may not match the return of its respective index, known as non-correlation risk, due to operating expenses incurred by the Fund. The alternate weighting approach employed by the Fund (i.e., using revenues as a weighting measure), while designed to enhance potential returns, may not produce the desired results. Because the Fund is rebalanced quarterly, portfolio turnover may exceed 100%. The greater the portfolio turnover, the greater the transaction costs, which could have an adverse effect on Fund performance.
These views represent the opinions of OppenheimerFunds 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.
Shares of Oppenheimer funds are not deposits or obligations of any bank, are not guaranteed by any bank, are not insured by the FDIC or any other agency, and involve investment risks, including the possible loss of the principal amount invested.
Before investing in any of the Oppenheimer funds, investors should carefully consider a fund’s investment objectives, risks, charges and expenses. Fund prospectuses and summary prospectuses contain this and other information about the funds, and may be obtained by asking your financial advisor, visiting oppenheimerfunds.com or calling 1.800.CALL OPP (225.5677). Read prospectuses and summary prospectuses carefully before investing.