For this week's feature, let's review the Oppenheimer Revenue ETF Model.

Why Revenue ETFs?

The Oppenheimer Revenue ETF suite provides access to a unique set of index-based ETFs that utilize a weighting system that is different from traditional capitalization-weighted strategies. The Oppenheimer Revenue ETFs are "revenue weighted", which means that securities are "weighted by their trailing 12-month top-line revenue, rather than their market capitalization, with a 5% maximum portfolio weight for any one issuer. The funds are rebalanced quarterly." Revenue is a metric that provides minimal exposure to accounting manipulations when compared to more popular ways of viewing a company; such as, earnings, book value, or cash flow. The focus is to capture greater exposure to value-oriented stocks, providing greater return the long term. In all, the Oppenheimer Revenue ETFs give investors access to a unique smart beta factor that is not tied to price or earnings, but rather the value style. Companies with high and stable revenue numbers historically have lower volatility and stable growth. Although the strategy shies away from the popular momentum factor, Oppenheimer’s target objective is value and stability.

Benefits of Revenue Weighting:

• Revenue weighting gives exposure to currently stable sectors, with quarterly rebalances allowing the flexibility to shift positioning during turbulent market periods.
• Minimizing accounting manipulation; with revenue giving a purer indication of a company’s value.
• Coverage - Broad market exposure to attractively valued companies.
• Fundamentals - A value and size approach mitigating investor exposure to overvalued securities.
• Long-term investment strategy with securities of lower volatility that are less prone to large market shifts.

Oppenheimer US Revenue Model Overview

The Oppenheimer US Revenue Model seeks to provide overweight exposure to the strongest fund within Oppenheimer's inventory of four Revenue ETFs that each provide broad exposure to one of the three capitalization categories, as well as a dividend focused inventory but do so with a weighting scheme based on top line revenue rather than market capitalization.  For example, the Oppenheimer Large Cap Revenue ETF RWL provides broad exposure to the S&P 500 universe, but does so by providing greater exposure to lower valuation companies than the market-cap benchmark.     

The Model’s inventory consists of the following Funds:

• The Oppenheimer Large Cap Revenue ETF RWL
• The Oppenheimer Mid Cap Revenue ETF RWK
• The Oppenheimer Small Cap Revenue ETF RWJ
• The Oppenheimer Ultra Dividend Revenue ETF RDIV

Systematic Model Rules:

• The Model is evaluated on a monthly basis and remains 100% invested at all times
• The members of the four fund inventory are compared to one another using a Relative Strength Matrix
• The Model inventory is ranked from strongest to weakest based on each fund’s “buy rank.”
• The top position is overweighted at 40%, and the remaining three members of the Model’s inventory are weighted at 20% each.
• Upon the monthly evaluation, if the top ranked fund has fallen below the top two positions in the Matrix, that fund loses its overweight allocation, and the highest ranked ETF in the Matrix is then overweighted at 40%
• Upon each change, the Model is rebalanced.