Equal-weight indexing is fighting for its share of respect and Rydex Investments plans to make sure it happens. In its new ETFs that track the nine industry sectors of the S&P 500, the Rockville, Md.-based fund company is using S&P's equal weight formula that gives each stock component equal representation. In other words, companies with the largest market caps won't necessarily dominate the volatility and performance of the index or these ETFs.
Verbal jousting between supporters of traditional market-cap indexing versus fundamental indexing continues to be quite loud and public. While both camps duke it out, Rydex hopes that more investors will see the merit of equal-weighted indexes.
This latest round of ETFs will compete head-to-head with the much larger and older Select Sector SPDRs. Introduced in 1998 and managed by State Street Global Advisors, the Sector SPDRs have amassed $18.5 billion in assets. The Select SPDRs track the same nine S&P sectors, but with a traditional market-cap weighting.
According to the prospectus, the Rydex ETFs have an expense ratio of 0.50 percent. Rydex entered the ETF marketplace in 2003 with the introduction of the firm's S&P Equal Weight fund (Amex: RSP). Since its inception, RSP has outperformed the traditional market-cap-weighted S&P 500 while attracting more than $1.6 billion in assets.
"Although the comparative returns and volatilities of the weighting methods might differ during market cycles, we've seen that over time, equal weighting tends to outperform cap weighting," says Tim Meyer, ETF business line manager at Rydex. "We believe investors who are looking for true exposure to a sector versus overexposure to a handful of stocks will appreciate the equal-weight methodology behind Rydex S&P Equal Weight Sector ETFs."
Rydex Investments manages $14 billion in mutual funds, exchange-traded funds and other specialized investment products.
Ron DeLegge is editor of www.etfguide.com.