When it comes to choosing exchange traded funds (ETFs) for a portfolio there are two things to consider. Which companies are in the basket and how are they weighted? With over 300 different types of ETFs on the market now, there are many options. About 90% of the ETFs weight companies in their basket based on market value. This is the number of shares outstanding times the current share price, written by Carl Delfeld in Forbes.com. This is market cap weighting and is the most commonly recognized method.
Barclays iShares, the largest family of ETFs on the market use market cap weighting. Their competitors must innovate with other strategies to capture market share. PowerShares ETFs use an enhanced index in which the companies in the basket are weighted in between the extremes of market value and equal weight. Rydex uses the S&P 500 Index and weights each company equally at 0.2% each. These are just a few of the options and differences to consider before investing.
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.