Happy Anniversary to the equal-weight exchange traded fund (ETF) strategy, which marked the beginning five years ago.

The Rydex S&P Equal Weight (RSP) started the trend on May 2, 2003, and has since opened the opportunity for ETFs to track an index measuring company weightings by factors other than market capitalization. Its five-year annualized returns is 13.4%.

David Hoffman of Investment News reports that at the end of 2007, there were at least 67 ETFs that tracked alternative indexes, by Morningstar’s count. The five-year anniversary of the equally weighted ETF from Rydex opens debate, where some claim this is a form of active management. Rydex is still working on an equal-weight ETF lineup of 10 funds.

Another fund of the equal weight strategy is the First Trust Nasdaq 100 Equal Weight Index (QQEW).

Since the advent of the equal weighting, many advisors are looking at their allocations and coming to the conclusion that it is prudent to use equal-weighted ETFs. Some advisors say it’s merely an attempt at building a better mousetrap.

For most advisors, equal-weight ETFs would be an excellent core holding.

Read the disclosure, as Tom Lydon is a board member of Rydex Funds.

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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.