Guggenheim Plans To Offer Its Own Indexes

December 16, 2011

Now it’s Guggenheim that wants to be a self-indexer, and it says it will save clients money doing it.


Guggenheim Funds, the money-management firm that acquired Claymore Securities and Rydex, filed paperwork with the Securities and Exchange Commission to begin offering its own indexes, making it the latest company to take part in what is quickly becoming a trend in the ETF industry.

Guggenheim put price at the center of its motivation, saying in its filing that investors also would see “relatively low expense ratios of the self-indexing funds as compared to those of their directly competitive traditional mutual funds, due to their in-kind efficiencies in portfolio management as well as other reduced infrastructure costs.”

Self-indexing has been much more the exception than the rule so far in the ETF industry's 18-year history. But BlackRock’s filing in August, seeking permission for its iShares ETF unit to develop and use its own indexes, might be looked back upon as a watershed moment. Guggenheim said in its filing its indexes would use a publicly available rules-based process. It also cited pioneering self-indexing ETF firms as regulatory precedents, including IndexIQ, Van Eck’s Market Vectors and WisdomTree, the first firm to self-index.

ETF industry sources say that one of the reasons more ETF firms are moving toward self-indexing is that they don’t want to pay increasingly pricey licensing fees to index providers. Many such arrangements are based on a percentage of assets a fund accumulates. That was perfectly amenable in a world of upstart firms and funds, but looks much less compelling these days, when a growing number of funds are multi-billion dollar juggernauts.

A Dedicated Webpage

In addition to reducing the expenses of trading, clearing and custody processes, another big advantage of self-indexing is that investors will have improved access to information on a special webpage dedicated to company’s self-indexing funds that would detail underlying index constituents, portfolio holdings and the deposit fund securities, Guggenheim said in the filing.

Greater regulatory disclosure about index composition is required by the SEC to prevent fund advisors from manipulating indexes for their own benefit, or for that of affiliated funds.

However, Guggenheim said in its filing that it would adopt policies and procedures to protect its clients and to address any potential conflicts of interest involving communication related to the maintenance and recalculation of underlying indexes.

A New Guggenheim In The Making

Guggenheim is in the midst of a reorganization of its asset-management businesses.

The combination of the Rydex and existing Guggenheim ETF businesses solidifies the firm’s place as the No.8 U.S. exchange-traded company. It is rumored to have plans of uniting all its ETFs under the Guggenheim brand name, though the Rydex funds will retain their existing trading symbols.

Also, Bloomberg News, citing sources close to the talks, reported in November that Guggenheim is looking to sell its Canadian ETF business.



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