Alternatively, Oppenheimer argued that investors may be better off with a revenue-weighted indexing methodology. Revenue weighting could provide diversified exposure to the market, is not influenced by stock price, reflects a truer indication of a company’s value and offers stable sector exposure. Moreover, revenue weighting may provide a more value-oriented portfolio and historically outperformed in a value-driven market while showing lower drawdowns during growth-driven markets.
“Revenue weighting a portfolio results in a more value-oriented portfolio than the S&P 500 Index,” French said. “We believe this outperformance is simply due to revenue’s fundamental qualities – the top line isn’t easily manipulated by accountants and thus is the purest form of a company’s value.”
French also pointed out that by rebalancing toward companies with persistent sales, revenue weighting helps keep a portfolio from overstaying during an overheating market. The result could be a portfolio with better risk-adjusted returns over the long haul.
“With revenue weighting we want to challenge the notion that smart beta is a trading strategy,” Peter Novak, Head of Platform Analytics at OppenheimerFunds, said. “We feel that revenue weighting offers a long-term investment solution for clients’ portfolios. Through various economic regimes, revenue has the potential to outperform.”
Investors interested in ways to diversify away from traditional beta-index products can consider Oppenheimer’s suite of revenue ETF strategies, including broad options like Oppenheimer Large Cap Fund (NYSEArca: RWL), Oppenheimer Mid Cap Fund (NYSEArca: RWK) and Oppenheimer Small Cap Fund (NYSEArca: RWJ), and Oppenheimer Ultra Dividend Revenue ETF (NYSEArca: RDIV).
Financial advisors who are interested in learning more about a revenue-weighted investment strategy can watch the webcast here on demand.