January 10, 2008 at 12:00 pm by Tom Lydon
While two exchange traded funds (ETFs) might follow the same underlying index, discrepancies are still possible.
A case in point is the SPDRs (SPY) vs. the Rydex S&P Equal Weight (RSP). Each fund has the same 500 stocks, but while SPY is weighted according to market cap, with an emphasis on large-caps, RSP is equal weighted and tends to favor the mid- and small-caps.
Arthur B. Hill of ETF Investment Outlook says that by looking at the performance of these two funds, investors can get a sense of the performance of small caps vs. large caps. The fact that the RSP dipped below its November low indicates there may be relative weakness for small-caps as a whole. Over the long-term, small-caps have outperformed large-caps. It has only been recently that we’ve seen a shift where small-caps are underperforming large-caps.
Read the disclosure, as Tom Lydon is a board member of Rydex Investments.
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