Small Cap Tilts With Equal Weight ETFs

July 24, 2014

Using equal-weighted ETFs can help put a small-cap and value tilt on a portfolio.

This article is part of a regular series of thought leadership pieces from some of the more influential ETF strategists in the money management industry. Today's article features Clayton Fresk, CFA, portfolio management analyst at Georgia-based Stadion Money Management.

Rick Ferri recently posted an article regarding portfolio tilting and the usage of small-cap and value ETFs. He described a process involving starting an allocation with total market-cap exposure and adding a slice of small-cap value stocks.

For advisors who have existing portfolios allocated toward a mix of different assets classes that may not easily afford switching to an allocation as Ferri described, an alternative way to capture the small/value tilt is through using equal-weighted as opposed to market-cap-weighted ETFs in various asset classes.

I’ll look at a variety of the different equal-weighted ETFs available and how substituting them into an existing portfolio may positively alter the risk/return profile of a portfolio.

Equal-Weight ETFs

The number of equal-weight ETFs and asset classes covered has increased over the past few years. Here is a list of equal-weight ETFs available:

Ticker Fund AUM ($M) Exp Ratio
Large Cap RSP US Guggenheim EW S&P 500 8372.2 0.40%
EWRI US Guggenheim EW Russell 1000 115.5 0.40%
Mid Cap EWRM US Guggenheim EW Russell Midcap 138.3 0.41%
Small Cap EWRS US Guggenheim EW Russell 2000 40.6 0.41%
Nasdaq QQEW US First Trust EW Nasdaq 100 428.2 0.60%
QQQE US Direxion EW Nasdaq 100 14.6 0.35%
EM EWEM US Guggenheim EW MSCI Emerging Markets 14.4 0.60%
Sector RCD US Guggenheim EW S&P Consumer Discretionary 88.9 0.50%
RHS US Guggenheim EW S&P Consumer Staples 160.4 0.50%
RYE US Guggenheim EW S&P Energy 308.1 0.50%
RYF US Guggenheim EW S&P Financials 100.8 0.50%
RYH US Guggenheim EW S&P Healthcare 224.4 0.50%
RGI US Guggenheim EW S&P Industrials 103.8 0.50%
RTM US Guggenheim EW S&P Materials 90.1 0.50%
RYT US Guggenheim EW S&P Technology 579.8 0.50%
RYU US Guggenheim EW S&P Utility 120.1 0.50%
MLP MLPN US Credit Suisse EW MLP 926.6 0.85%

A few other equal-weight ETFs of note, particularly in the large-cap space:

Also, the equal-weighted Russell 1000, midcap and 2000 ETFs named above have two layers of equal weighting. First, each sector is equally weighted, and then within the sector, each individual stock is equally weighted.


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