Using ETF's

CHOOSING                TRADING                REBALANCING

 

Factors in Choosing ETFs

There are multiple factors that may enter into the decision-making process in choosing which ETFs to incorporate into investment allocation. A certain number of advisors and investors may restrict themselves only to funds that are very large in terms of assets and that trade very high share volumes daily. While size and volume may be an important consideration for very active or tactical trading, it may be much less important for longer-term core investing. For example, deciding based solely on these two factors would exclude approximately 90% of all ETFs available in the marketplace. This could leave out many viable and attractive alternatives that might substantially enhance the risk/reward profile of an overall portfolio. For the core of an asset allocation model, it may make more sense to prioritize how the investments have reacted and how they may be likely to react over a longer period or full market cycle.

Please take a look at an example of Oppenheimer Revenue Weighted Strategy ETF trading volume.

 

Trading Strategies

The strategies below may help advisors trade ETFs more effectively:

Rule #1: Use effective trading times. Avoid trading right at the market opening or market closing. That will help ensure more accurate pricing, unless you enter orders to participate in the pre- or post-market auctions (LOO, LOC).

Rule #2: Use limit orders only. To potentially reduce poor execution, avoid market orders.

Rule #3: Trading volume does not affect net asset value (NAV). Trading volume can affect the price paid for an ETF, but not the NAV. The average daily trading volume in the S&P® Futures market is approximately $93.5 billion. The average daily market cap of the S&P 500® Index is approximately $9 trillion each day.

Rule #4: Place your limit order to the bid/ask. The bid/ask will be close to the intrinsic value (the value of the underlying securities).

Rule #5: Large orders do not affect NAV. Share prices are based on the underlying value of the securities, therefore a large order will not "move the market."

  

Importance of Quarterly Rebalancing

Each of our ETFs weight its constituents on the trailing 12 months of revenue. This weighting is rebalanced each quarter. The rationale for the quarterly rebalancing:

- It allows for the weightings to take into account the seasonality of revenue.

- It protects against the risk of stock weightings being influenced by long-term dispersions between market prices and true valuations

Holdings data reflects the accounting positions as of the date listed, and may not reflect any trades made on that date.

On December 2, 2015, OppenheimerFunds, Inc. acquired 100% of the stock interests of VTL Associates, LLC, the investment adviser to the Oppenheimer Revenue Weighted ETF Trust, formerly the RevenueShares ETF Trust (the “Trust”). As of that date, OppenheimerFunds Distributor, Inc. became the general distributor and principal underwriter for each series of the Trust.

An investment in the funds is subject to investment risk, including the possible loss of principal amount invested. Fund returns may not match the return of their respective Index, known as non-correlation risk, due to operating expenses incurred by the funds. The alternative weighting approach employed by the each Fund (i.e., using revenues as a weighting measure), while designed to enhance potential returns, may not produce the desired results. Because each fund is rebalanced quarterly, portfolio turnover may exceed 100%. The greater the portfolio turnover, the greater the transaction costs, which could have an adverse effect on Fund performance. The risks associated with each specific fund are detailed in the prospectus and could include factors such as increased volatility risk, small and medium capitalization stock risk, concentration risk, non-diversification risk, financials sector risk, American Depositary Receipt risk, currency exchange risk, foreign market risk, growth style investing risk, portfolio turnover risk, and/or special risks of exchange-traded funds.

The Fund’s per share net asset value or “NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price” or “MP”) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which the shares of the Fund are listed for trading when the fund’s NAV is calculated at market close. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in the Fund at Market Price and NAV, respectively.) Returns less than one year are cumulative.

STANDARD & POOR'S and S&P are registered trademarks of Standard & Poor's Financial Services LLC ("S&P") and have been licensed for use by VTL Associates, LLC, Fund Advisor. No financial product offered by VTL Associates, LLC, Fund Advisor or its affiliates is sponsored, endorsed, sold or promoted by S&P or its affiliates, and S&P and its affiliates make no representation, warranty or condition regarding the advisability of buying, selling or holding units/shares in such products.