Rydex Cans 12 Leveraged/Inverse ETFs

April 23, 2010

 

Rydex/SGI announced today that it would close 12 of its 14 leveraged and inverse exchange-traded funds. The funds have failed to attract significant assets after nearly 2 1/2 years of trading.

The move comes two months after Rydex’s parent company, Security Benefit, was acquired by the private equity firm Guggenheim Capital.

The funds that are closing are:

Rydex 2X Russell 2000

RRY

Rydex Inverse 2X Russell 2000

RMM

Rydex 2X S&P MidCap 400

RRZ

Rydex Inverse 2X S&P MidCap 400

RMS

Rydex 2X S&P Select Sector Energy

REA

Rydex Inverse 2X S&P Select Sector Energy

RFL

Rydex 2X S&P Select Sector Financial

RHM

Rydex Inverse 2X S&P Select Sector Financial

RTG

Rydex 2X S&P Select Sector Health Care

REC

Rydex Inverse 2X S&P Select Sector Health Care

RFN

Rydex 2X S&P Select Sector Technology

RHO

Rydex Inverse 2X S&P Select Sector Technology

RTW

 

The funds have a combined $129 million in assets. It’s commonly said that ETFs need $50-$100 million in assets to be profitable for the issuer. These funds clearly didn’t make the cut for Rydex’s new owner.

The last day of trading for the funds will be May 21. Shareholders of record will receive cash payments based on the full net asset value of the funds on May 28. To its credit, Rydex will not charge shareholders in the funds any closing costs. It will, however, pass through any capital gains or losses accrued by the fund to shareholders.

The company is not closing the Rydex 2X S&P 500 ETF (NYSEArca: RSU) or Rydex Inverse 2X S&P 500 ETF (NYSEArca: RSW), which will be its two remaining leveraged/inverse ETFs. Those funds have $115 million and $84 million in assets, respectively.

Despite being a leader in the leveraged and inverse mutual fund space, Rydex was slow to enter the leveraged ETF market, ceding leadership to ProShares and Direxion.

The closures do not impact Rydex’s popular line of equally weighted equity ETFs or its CurrencyShares ETFs. Together, those funds have approximately $7 billion in assets, although some of the funds—such as the $11 million Rydex S&P Equal-Weighted Consumer Staples ETF (NYSEArca: RHS)—are quite small. Rydex spokesperson Lori Klash Winkler, however, told IndexUniverse that Rydex has “no plans to close” any of its equal-weighted ETFs.

Of note: The new owner of Rydex—Guggenheim Partners—also recently purchased Claymore Securities. Investors may wonder if a new round of closures is coming at that ETF issuer as well.

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