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.