ETF Spotlight: Equal-Weight S&P 500
December 6th 2011 at 12:08pm by Tom Lydon
Much has been made of the “lost decade” in stocks with the S&P 500 suffering a pair of major sell-offs in the dot-com bubble bursting in 2008 followed by the more recent credit meltdown. However, an exchange traded fund that equal-weights the S&P 500 has held up much better than the market-cap index that many investors use to measure the U.S. stock market.
According to a recent Bloomberg report, the market-cap weighted S&P 500 is down 19% since the end of the dot-com era in 2000. However, an equally-weighted index of S&P 500 components has gained 66% from March 24, 2000, through Dec. 2. [ETF Chart of the Day: S&P 500 Equal Weight]
Equal-weight equity ETF may help investors gain exposure to price movements in the smaller, more nimble components in a benchmark.
“Corporate America repaired itself,” Chris Hyzy, chief investment officer at U.S. Trust Co., said in the Bloomberg article. “On an equal-weighted basis, it hasn’t been a lost decade.”
Rydex SGI offers a suite of ETFs that follow the equal-weight methodology and was the first to launch an equal weight ETF back in 2003. The company is being acquired by ETF manager Guggenheim.
Rydex S&P Equal Weight ETF (NYSEArca: RSP) sports a three-year annualized return of 22%, compared with 15.3% for the S&P 500, according to Morningstar.
“Since inception this fund has outpaced the market-weighted S&P 500. Equal-weighting’s boosters claim the strategy beats the market by eliminating market-weighting’s growth bias,” says Morningstar analyst Samuel Lee.
Sector equal-weight ETFs include:
- Rydex S&P Equal Weight Consumer Discretionary ETF (NYSEArca: RCD): up 34.56% over the past three years.
- Rydex S&P Equal Weight Consumer Staples ETF (NYSEArca: RHS): up 21.45% over the past three years.
- Rydex S&P Equal Weight Energy ETF (NYSEArca: RYE): up 27.19% over the past three years.
- Rydex S&P Equal Weight Financials ETF (NYSEArca: RYF): up 17.53% over the past three years.
- Rydex S&P Equal Weight Health Care ETF (NYSEArca: RYH): up 21.13% over the past three years.
- Rydex S&P Equal Weight Industrials ETF (NYSEArca: RGI): up 21.1% over the past three years.
- Rydex S&P Equal Weight Materials ETF (NYSEArca: RTM): up 26.44% over the past three years.
- Rydex S&P Equal Weight Technology ETF (NYSEArca: RYT): up 25.82% over the past three years.
- Rydex S&P Equal Weight Utilities ETF (NYSEArca: RYU): up 15.02% over the past three years.
Rydex S&P Equal Weight ETF
For more information on equal-weight ETFs, visit our equal-weight ETFs category.
Read the disclaimer; Tom Lydon is a board member of the funds of Rydex|SGI.
Max Chen contributed to this article.
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.