ETF Trends
ETF Trends

The debate surrounding smart or strategic beta or alternative indexing is not limited to terminology. That debate has, well, sparked other debates, including whether or not equal-weight exchange traded funds fit the bill as smart or strategic beta offerings.

Guggenheim Managing Director Bill Belden believes equal-weight ETFs should be considered in the strategic beta conversation. Belden ought to know because Guggenheim is one of the largest purveyors of equal-weight ETFs, including the $8.9 billion Guggenheim S&P 500 Equal Weight ETF (NYSEArca: RSP), one of the marquee equal-weight products from any fund provider.

“We do position equal-weight as smart/strategic beta,” said Belden in an interview with ETF Trends from the Morningstar ETF Conference in Chicago. “When comparing RSP to a cap-weighted S&P 500 fund, it’s hard to say RSP is not smart or strategic beta.”

As has been noted many times in the past, RSP has a legacy of outperforming cap-weighted S&P 500 funds. Since the March 9, 2009 market bottom, the Guggenheim offering has surged 312.3% compared to 232% for cap-weighted rivals. [Get Tactical With ETFs]

However, as Belden acknowledges, RSP is not a free lunch because with those higher returns has come modestly higher volatility.

“It is incumbent upon sponsors like us to educate advisors and investors about the higher risk/reward profile with equal-weight ETFs,” added Belden.

While equal-weight ETFs have been more than legitimized over the years, some critics allege that the advantages of these products are solely tied to deeper exposure to small-caps and/or value stocks. However, Belden shed some light on an oft-overlooked driver of returns to equal-weight ETFs: Rebalancing. Efficient rebalancing of equal-weight ETFs, either sector or broad market funds, not only drives returns, but also helps these ETFs steer clear of concentration risk. [How to Evaluate ETFs]

Guggenheim also features a lineup of nine equal-weight sector ETFs, several of which have proven their mettle at times when avoiding single-stock risk has been prized by investors.

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