Rydex Tightens Belt; Closes Several Inverse/Leveraged ETFs

April 26th at 12:00pm by Tom Lydon

Rydex|SGI recently announced they are calling it quits for twelve of their leveraged exchange traded funds (ETFs). But that doesn’t mean they’re not bullish about their ETF business as a whole.

Rydex is pulling the plug on 12 out of 14 leveraged ETFs which have failed to attract significant assets after nearly two-and-a-half years of trading. [What Happens When an ETF Closes.]

Matt Hougan for Index Universe reports that the last day of trading for the funds will be May 21 and shareholders of record will receive cash payments based on the full net asset value of the funds on May 28. No closing costs are going to be charged. [Two Uses for Leveraged and Inverse ETFs.]

The funds have a total of $129 million in assets, less than 2% of Rydex’s total ETF business. It’s generally accepted that ETFs need around $50 million-$100 million in assets to be profitable.

Rydex CEO Rich GoldmanĀ  says the closures are in the best interest of the shareholders and that not being a mover in the inverse and leveraged space hurt the funds. Goldman stressed, though, that the closure of these funds shouldn’t be taken as a signal that Rydex is exiting the leveraged and inverse space in either mutual funds or ETFs.

The closing ETFs are:

  • Rydex 2X Russell 2000 (NYSEArca: RRY)
  • Rydex Inverse 2X Russell 2000 (NYSEArca: RMM)
  • Rydex 2X S&P MidCap 400 (NYSEArca:RRZ)
  • Rydex Inverse 2X S&P MidCap 400 (NYSEArca: RMS)
  • Rydex 2X S&P Select Sector Energy (NYSEArca: REA)
  • Rydex Inverse 2X S&P Select Sector Energy (NYSEArca: RFL)
  • Rydex 2X S&P Select Sector Financial (NYSEArca: RHM)
  • Rydex Inverse 2X S&P Select Sector Financial (NYSEArca: RTG)
  • Rydex 2X S&P Select Sector Health Care (NYSEArca: REC)
  • Rydex Inverse 2X S&P Select Sector Health Care (NYSEArca: RFN)
  • Rydex 2X S&P Select Sector Technology (NYSEAra: RHO)
  • Rydex Inverse 2X S&P Select Sector Technology (NYSEArca: RTW)

Rydex won’t be closing the Rydex 2x S&P 500 (NYSEArca: RSU) or the Rydex Inverse 2x S&P 500 (NYSEArca: RSW), which are popular with investors. They hold $115 million and $84 million in assets, respectively. Rydex’s CurrencyShares and Equal Weight funds will not be affected, either.

Despite the closures, Rydex is very much looking forward and sees its ETF business as otherwise robust.

The business has had substantial growth and there’s been tremendous demand,” Goldman says, pointing out that ETFs are now about 30% of Rydex’s total business. Rydex’s assets stand at $7 billion, an all-time high for them.

Despite the lackluster response to the 12 closing funds, the provider has seen growth in other areas. One such area is the Rydex S&P Equal Weight (NYSEArca: RSP) fund, which Goldman says has gotten increased recognition in the ETF marketplace as an alternative way to play the S&P 500.

Going forward, Goldman says that Rydex has a whole suite of new ideas, but which ones make it to market will depend on two things:

1. What their research says about what the market wants and/or needs.

2. Where Rydex believes its competitive advantage lies.

For more stories about long-short ETFs, visit our long-short ETF category.

Read the disclaimer; Tom Lydon is a board member of Rydex|SGI.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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