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.
Now, with the addition of the global, international and emerging market options, investors interested in this fundamentally driven, smart beta indexing methodology may better diversify their portfolios.
“We’ve been fortune enough to launch into the international, global and emerging markets arenas – areas where OppenheimerFunds has a long history, a long heritage,” Straut said.
OppenheimerFunds recently rolled out the Oppenheimer Emerging Markets Revenue ETF (NYSEArca: REEM), Oppenheimer Global Revenue ETF (NYSEArca: RGLB) and Oppenheimer International Revenue ETF (NYSEArca: REFA).
With an extended bull rally in U.S. markets and valuations growing elevated, more investors have looked to the relatively cheap overseas markets as a way to diversify and potentially enhance returns. Many investors, though, remain underallocated to international markets, and as more look to foreign market exposure, one may look to a revenue-weighted methodology to potentially enhance returns and diminish potential risks.
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