A Fundamental Index-Based ETF Strategy to Diversify a Portfolio

Investors seeking diversified opportunities in both domestic and overseas equity markets may consider a revenue-weighting ETF strategy to focus on strong fundamentals.

“Revenue is sort of the fundamental weighting – leads you to a value oriented factor, leads you a little bit of a size oriented factor,” Matt Straut, Head of RIA Distribution for OppenheimerFunds, said at the recent Morningstar ETF Conference.

Investors who believe in a return to fundamentals can look to the revenue-weighted methodology, including options like the Oppenheimer Large Cap Revenue ETF (NYSEArca: RWL), Oppenheimer Mid Cap Revenue ETF (NYSEArca: RWK) and Oppenheimer Small Cap Revenue ETF (NYSEArca: RWJ).

As the bull market extends, investors tend to forget about valuations and continue to ride high-flying stocks, which may potentially expose investors to risks, such as a quick drawdown. Additionally, in an extended bull run, traditional market capitalization-weighted indices become top heavy and expose investors to some of the most high-flying stocks of the current market.

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.