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New ETF Based on Equal-Weight S&P Index Offers Hed

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NEW YORK (–Mutual fund manager Rydex Global Investors launched on April 30 an exchange-traded fund that tracks an equal-weight version of the Standard & Poor’s 500 stock index, providing a new choice for hedging market risk.

The underlying index, developed by Standard & Poor’s in cooperation with Rydex and introduced in January, has the same constituents as the traditional S&P 500. But it avoids concentration in large-cap companies and has greater sector diversification as well as broad exposure to the market.

Its performance does not exactly parallel the traditional S&P, said Chuck Tennes, Rydex portfolio director. The equal weight index underperformed the traditional measure for the first quarter of this year but has outperformed during the April rally. Some of these differences are predictable, said Mr. Tennes.

“This provides a different point of view for the investor,” he remarked. “Fund managers that want to short the S&P in order to hedge market exposure will have a choice between the capitalization-weighted and equal-weighted versions. They can be more precise.”

The new benchmark eliminates the bias toward larger companies by giving equal place to all 500 stocks, so that, for example, Microsoft has a 0.2% weight instead of the 3.5% weight it is assigned in the conventional S&P 500. The Rydex S&P Equal Weight ETF will be rebalanced every quarter.

It is listed on the American Stock Exchange under the symbol RSP. Bear Hunter Structured Products LLC is the Amex specialist for the fund, and Bank of New York is the administrator. Like other exchange-traded funds, it can be traded through the day and allows short selling, placing of limit and stop orders and the purchase of shares on margin.

Rydex manages US$6.5 billion in mutual fund assets, including long and short bond funds, sector funds and a leveraged vehicle. In January, Rydex registered a closed-end indexed hedge fund of funds with the Securities and Exchange Commission Previous HedgeWorld Story. Rydex Capital Partners Sphinx Fund is indexed to Standard and Poor’s Hedge Fund Index.

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