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.
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.
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.
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.
Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so an investor’s shares, when redeemed, may be worth more or less than the original cost. For the Fund’s most recent month-end performance, please visit oppenheimerfunds.com.
The NAV return is based on the net asset value of the Fund and the market return (MKT) is based on the market price per share of the Fund. The price used to calculate MKT is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which the shares of the Fund are listed for trading when the Fund’s NAV is calculated at market close. On 2/19/08 and 3/31/08 for RWL, the last trade price was used to calculate market return because 4:00pm EST midpoint bid/ask prices are not available on those dates. On 9/30/08, the last trade price for RWL was used to calculate market return because an uncorrected, failed trade resulted in an incorrect 4:00pm EST midpoint bid/ ask price on that date. MKT and NAV assume dividends and capital gains distributions have been reinvested in the Fund at market price and NAV, respectively. Returns less than one year are cumulative.
Standard & Poor’s,® S&P® and S&P 500® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by OFI Advisors, LLC. The S&P 500 Value Index, S&P MidCap 400 Value Index, and S&P SmallCap 600 Index are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of those S&P Indices. *Negative P/E’s are excluded from this ratio calculation.
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 subject to change based on subsequent developments.