A new exchange traded fund, Rydex Russell Top 50 ETF (XLG), intended to give investors single-stop shopping for exposure to the 50 largest U.S. companies, was launched with its listing on the American Stock Exchange on May 10. The fund tracks the Russell Top 50 Index, which focuses on the top 50 mega-cap companies that collectively represent approximately 40% of the total U.S. market capitalization.
“This is the first, true mega-cap ETF out there,” said Steve Sachs, Rydex Investment’s director of trading at a press briefing coinciding with the fund’s launch. In explaining the rationale for launching a mega-cap ETF at this time, he noted that advisors should be pointing out to their clients that “we’re in year four of an economic expansion and, typically, large caps outperform in the later stages” of the economic cycle. So this product offers trading flexibility, transparency, and the ability to stay fully invested.
Jim Guilfoil, who oversees ETF product sales for Russell Investment Group, stressed that while the Russell Top 50 Index is relatively new, the company has been tracking the top 50 mega-cap companies internally since 1979. “It’s been our experience that institutional money managers frequently underweight the top 50 in their asset allocations.”
The companies listed in the Russell Top 50 Index are selected solely on the basis of market cap, regardless of their sector or industry representation, and the index is reviewed annually and reconstituted as necessary to ensure that it accurately represents the 50 biggest stocks. The companies in the index come from across the spectrum of sectors. and are led by ExxonMobil, GE, Citigroup, Microsoft, Pfizer, Johnson & Johnson, Bank of America, IBM, Intel, and Procter & Gamble.
This is Rydex’s second foray into the ETF arena, following the introduction last year of Rydex S&P Equal Weight (RSP), and is the 22nd product tied to a Russell Index. Like most ETFs, this new offering aims to keep costs low; according to Sachs, the ETF has an expense ratio of only 20 basis points.