ETF Spotlight on Rydex S&P Equal Weight (RSP),  part of a weekly series.

Assets: $1.1 billion

Holdings: Among this fund’s components are Expedia (EXPE), Office Depot (ODP), Tenet Healthcare (THC) and Wyndham Worldwide (WYN). The top sector weighting is consumer discretionary, at 16.3%. Financials are 15.7%, information technology is 14.9% and industrials are 11.6%.

Objective

RSP tracks the S&P Equal Weight Index, which is an equally weighted index made up of components in the S&P 500. To maintain this equal weighting, the index rebalances on a quarterly basis.

What’s Good

• Why equal weight? The S&P 500 is a market cap weighted index, meaning that the largest companies get the biggest percentage of the weighting. This can lead to those companies having an outsized influence on the index’s direction. By using equal weight, all stocks are on a level playing field.
• Weighting an index with this strategy can give an investor more small- and mid-cap exposure, which can be appealing in recovery climates when smaller stocks have historically tended to outperform.
• The different weighting methods can result in different sector exposures than the original index.
• Another benefit of equal weighting is that no stock can become too big and sink the whole ship.

The Latest News

• RSP has been outperforming the S&P 500 year-to-date. It’s up 23% vs. the S&P, which is up 10.3%.
• As the economy recovers, small- and mid-caps have been outperforming large caps, which gives the equal weight strategy a chance to shine.

Read the disclaimer, as Tom Lydon is a board member of Rydex Funds.

Tags: Asset Class ETFs, ETF 101, ETF Spotlight, Indexing, S&P 500