A Revenue Tilt Could Help Keep High-Yield ETF Risks in Check

Despite the shifting interest rate outlook, the ongoing low-rate environment has still compelled many income-minded investors to diversify and look for alternatives, like dividend-related exchange traded funds, in an attempt to generate attractive yields.

For example, the Oppenheimer Ultra Dividend Revenue ETF (NYSEArca: RDIV), which tracks 60 stocks in the S&P 900 with the highest 12 month trailing dividend yield and weights them by revenue, shows a 3.42% 12-month dividend yield.

While some may be put off by the focus on highest yielding dividend stocks taken from a broader universe and the potential risks this entails, RDIV also includes a revenue-weighted tilt that could refocus the ETF strategy toward companies with stronger fundamentals or those that are more likely to maintain their higher level of yields.

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.