Before exchange traded funds (ETFs) came along it was hard to offer indexes not based on market capitalization. Equal weighting is a way to give indexes more exposure to small stocks. Despite their size and stock price, Rydex Investments S&P Equal Weight ETF (RSP) gives every company on the S&P 500 index an equal 0.2% sliver of the fund, reports Ben Steverman of Investor’s Business Daily.
According to Rydex, over time equal weighting should outperform market-cap indexes because smaller companies do better than larger ones. The Rydex ETF must be re-balanced every quarter to ensure each stock has an equal share of the fund. This is great for investors as winning stocks are sold and underperforming stocks are bought.
Read the disclosure, as Tom Lydon is a board member of Rydex funds.
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.