Rydex Adds 2 Equal-Weight S&P Equity ETFs

August 04, 2011

Rydex, building on success of RSP, serves up equal-weighted S&P MidCap and SmallCap ETFs.

Rydex/SGI, the Rockland, Md.-based money management firm known for its equal-weighted S&P 500 ETF (NYSEArca: RSP), launched another two equal-weighted ETFs that extend the company’s coverage of the S&P-indexed U.S. equities universe to include companies of small and mid-capitalization.

The Rydex S&P MidCap 400 Equal Weight ETF (NYSEArca: EWMD) and the Rydex S&P SmallCap 600 Equal Weight ETF (NYSEArca: EWSM) join the company’s first-to-market equal weighted Rydex S&P 500 Equal Weight ETF (NYSEArca: RSP). Both new funds, as well as RSP, have annual expense ratios of 0.40 percent.

Launched back in 2003, RSP has gathered $3.2 billion in assets by offering what the company says is broader diversification on the S&P 500 pool of securities than, say, cap-weighted strategies such as State Street Global’s SPDR S&P 500 (NYSEArca: SPY) and the iShares S&P 500 ETF (NYSEArca: IVV).

RSP has outperformed year-to-date its cap-weighted counterparts, raking in 7.7 percent in gains while SPY and IVV have returned less than 6 percent in the same time period, according to data compiled by IndexUniverse.

But RSP remains the smaller player in the space in terms of assets, suggesting that investors still seem generally comfortable with traditional cap-weighted methodologies. SPY is the world’s largest ETF with nearly $93 billion in assets while IVV has gathered more than $27 billion since its 2000 inception.

Still, Rydex is betting on the growing following of equal-weighted methodologies. EWMD and EWSM are not Rydex’s first go at the S&P small and mid-cap segments. The company also manages a lineup of “pure growth” strategies that include (NYSEArca: RZG), (NYSEArca: RFG) and (NYSEArca: RPG).

Mid-Cap EWMD

EWMD tracks the equal-weighted version of the S&P MidCap 400 Index. Therefore it includes the same mid-size companies comprising the market-capitalization weighted index, but each component is assigned an equal weight. The portfolio is rebalanced quarterly. The S&P MidCap 400 covers more than 7 percent of the U.S. equity market.

Financials, industrials, information technology and consumer discretionary names represent roughly two-thirds of the portfolio, a sector allocation that is very similar to the cap-weighted version of the S&P MidCap 400 Index. But the company said on its website that the equal-weighting methodology allows for broader diversification.

From an individual security perspective, companies like Green Mountain Coffee Roaster and Vertex Pharmaceuticals each represent almost 1 percent of the cap-weighted mix, but in EWMD they are each assigned about a quarter of that weight, again in amounts equal to the other components in the fund.

Small-Cap EWSM

EWSM meanwhile taps into the small-capitalization segment of the S&P equities universe through an equal weighted version of the S&P SmallCap 600 Index. That benchmark represents about 3 percent of all U.S. equities.

Information technology is the fund’s biggest sector allocation, representing nearly 22 percent of the portfolio, followed by consumer discretionary names and financials.


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