All funds that track the Standard & Poor’s 500 index are not created equal.
The exchange-traded Rydex S&P Equal Weight Fund (RSP) offered by Rydex Investments is an exception. Every stock in its portfolio carries the same weight.
That makes the ETF different from most S&P 500 index funds, which are market-cap weighted, meaning that the biggest companies account for a larger chunk of assets than smaller ones.
Funds like Rydex’s can outperform conventional S&P index funds when small and mid-cap stocks are in favor, as they have been in recent years.
“That’s the principal advantage, I think, that stands out,” said David Blitzer, the chairman of the Standard & Poor’s committee that decides what stocks are added to or deleted from the S&P 500.
Steve Sachs, Rydex’s director of trading, maintains that the Equal Weight Fund also provides greater investment diversity because it gives each stock the same shelf space.
Because the proportion of each company in the S&P 500 is tied to its market capitalization, the biggest companies can heavily affect the index’s performance, he said. “You don’t have that issue” in an equal-weighted index fund. You’re allowing more of the portfolio to help you out, as opposed to just a handful of names.”
Also, the equal weight index that the Rydex ETF tracks offers greater exposure to undervalued stocks, according to research conducted by Standard & Poor’s, which developed the index with Rydex.