Daily ETF Watch: Equal-Weight Fund Plan

It looks like RSP will soon have competition from another equal-weighted take on the large-cap space.

Managing Editor
Reviewed by: Olly Ludwig
Edited by: Olly Ludwig

It looks like RSP will soon have competition from another equal-weighted take on the large-cap space.

Invesco PowerShares, one of the early innovators in the world of enhanced beta exchange-traded funds, filed regulatory paperwork this week to market an ETF based on an equal-weighted version of the large-cap Russell 1000 Index, a me-too version of the already-existing Guggenheim ETF.

The proposed PowerShares Russell 1000 Equal Weight Portfolio will compete for investor interest with the Guggenheim Russell 1000 Equal Weight ETF (EWRI | B-69), which has grown into a nearly $120 million fund since its launch in December 2010. The new PowerShares fund will also complete with one of the most successful “smart beta” funds ever launched, the $8.6 billion Guggenheim S&P 500 Equal Weight ETF (RSP | A-80).

The equal-weighted large-cap index—whether built around the Russell 1000 or the S&P 500—will tilt to relatively smaller stocks in the underlying index, which can add volatility and risks in the nearer term, but also to returns over the arc of time, academic research on the investment markets has shown.

The “smart beta” pocket of the indexing world—which includes equal-weighted strategies—has been exceedingly vibrant over the past few years. Investors increasingly open to factor-based approaches to securities selection that can help isolate areas of return that pure beta capitalization-weighted strategies can’t access as purely.

Overall, the “smart beta” trend has blurred the lines between passive and active approaches to the market. Areas previously understood to be realms of alpha generation have effectively turned into beta through "enhanced beta" indexes such as those that weight index constituents equally.

In the preliminary prospectus, PowerShares included neither a proposed ticker nor a proposed expense ratio for its proposed equal-weighted version of the large-cap Russell 1000 Index.

Guggenheim’s equal-weighted Russell 1000 ETF, EWRI, has an annual expense ratio of 0.40 percent, or $40 for each $10,000 invested. That's the same price tag as RSP's.


Olly Ludwig is the former managing editor of etf.com. Previously, he was a financial advisor at Morgan Stanley Smith Barney and an editor at Bloomberg News. Before that, Ludwig was a journalist at the Reuters News Agency in New York.