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Portfolio > ETFs

The Latest Funds Focus on Growth, Value and Dividends

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The ETF landscape just keeps getting bigger. In March, Rydex Investments launched six funds and First Trust Advisors added one.

The Rydex ETFs will track S&P/Citigroup Pure Style indexes, which focus on stocks that exhibit strong growth or value characteristics. The S&P 500, the S&P Mid Cap 400 and the S&P Small Cap 600 are divided into sub-indexes designed to track the growth and value portions of each index. Each Pure Style index contains approximately one-third of the market cap of the parent index. In an attempt to eliminate size bias, stocks within each Pure Style index are weighted according to their style scores rather than cap-weighted.

“ETFs continue to gain in popularity,” according to Tim Meyer, business manager for ETFs at Rydex Investments. “Financial intermediaries and their clients continue to find these products useful in building diversified portfolios and we are committed to bringing useful and innovative ETFs to the marketplace to offer new choices in the implementation of investment portfolios.”

Rydex entered the ETF marketplace in 2003 with the Rydex S&P Equal Weight fund (Amex: rsp). The firm also manages a group of specialized mutual funds that utilize leverage and short strategies.

First Trust’s Morningstar Dividend Leaders (Amex: fdl) is composed of the top 100

dividend-yielding companies listed on U.S. stock exchanges. Large banks and money centers weigh heavily in the group, with Citigroup, Bank of America, JP Morgan Chase and US Bancorp accounting for four of the top 10 holdings. Other top holdings include Altria, AT&T and Merck.

The latest ETF is the second for First Trust Advisors and will compete with similar offerings from Barclays Global Investors, PowerShares and State Street Global Advisors. BGI sponsors the iShares Dow Jones Select Dividend Index (NYSE: dvy) and PowerShares offers the Dividend Achievers (Amex: pfm), among others. SSgA has the SPDR Dividend ETF (Amex: sdy).

Morningstar is nudging its way into the ETF business by licensing its indexes. In 2004, BGI launched a series of ETFs tracking indexes developed by Morningstar. Scott Hall, managing director of First Trust, explains Morningstar’s formula as “a set of screens looking not only for those stocks with high dividend yield, but also dividend consistency and sustainability” while the underlying index behind First Trust’s Morningstar Dividend Leaders is “a departure from the typical ‘just deliver dividends’ approach to many current dividend funds.”

The latest offerings all trade on the Amex The Rydex ETFs all have an expense ratio of 35 basis points while the First Trust ETF charges 45 basis points.


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