For example, 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).
The underlying index implements a rules-based, disciplined smart beta indexing methodology targets known indices like the S&P 500 and tries to improve their performance return through weighting each security in the index by top line revenue. Components are then rebalanced every quarter to keep the Revenue-Weighted indices in line with the companies’ most recently reported revenue levels.
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.
“We believe quarterly rebalancing such strategies by revenue may offer investors three compelling benefits: 1) Maintains focus on lower-valued companies. 2) Reduces exposure to overpriced stocks. 3) Could cause underperformance in a bubble, but holds the potential for better returns during the rebound and over the long term,” according to OppenheimerFunds.
For more on smart beta ETFs, visit our Smart Beta Channel.