Frank Vallario, Portfolio Manager, Beta Solutions for OppenheimerFunds, focused on fundamental factors that can help support an investment over the long-term, including revenue weighting. Specifically, revenue has the last ability to be manipulated, providing investors with a clear factor that could help produce improved risk-adjusted returns.
“Revenue weighting provides the same complete, diversified coverage of the equity market that cap-weighting does, but it emphasizes an important company fundamental – revenue – rather tan companies’ stock prices,” Mazza said.
Because of the revenue-weighting characteristic, a fund strategy tilts away from potentially overvalued momentum stocks and leans more toward low valuation companies with low price-to-book. The revenue-weight factor could also provide a better or more diversified way for investors to participate in the markets over the long haul.
“Historical evidence suggests that a revenue-weighted portfolio can maintain stable country and sector exposures during market price swings, since strategies are grounded by a company fundamental, rather than by stock prices, and are rebalanced quarterly,” Mazza said.
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).
Vallario explained that each portfolio begins with the same basket of securities as a benchmark index, like those from the Standard & Poor’s or MSCI. However, each security is weighted by its trailing four quarters of revenue, instead of by its market capitalization, with a 5% maximum portfolio weight for any single issuer. The portfolio is then rebalanced on a quarterly basis.
Financial advisors who are interested in learning more about a revenue-weighted investment approach can watch the webcast here on demand.