U.S. Markets closed

ETF Chart of the Day: Guggenheim S&P 500 Equal Weight


Sticking with a theme this week of exploring alternatives to market capitalization weighted indices via ETFs (recall we examined RevenueShares’ revenue weighting process as well as PowerShares RAFI fundamental factor weighting methodology in recent days), “Equal Weighting” is a timely topic today.

RSP (Guggenheim S&P 500 Equal Weight) saw enormous trading volume this past Tuesday, with more than 5 million shares trading during the session (versus average daily volume of 501,000 shares) and this is not particularly surprising to see going into the year’s end.

We say this, because it is quite common for institutional ETF investors whom have positions in broad based index tied ETFs that track benchmarks such as the S&P 500, to make tactical shifts using “beta” products for year end re-positioning, if not engage in tax related “swaps” where it makes sense.

For more in depth information about “tax swaps” and what may be in play heading into December 31, kindly contact the trading desk. RSP is designed to track the S&P 500 Equal Weight Index, which as its name suggests, owns all 500 names in the S&P 500 Index but the weightings of these individual names are determined in an “equal weight” fashion as opposed to being tied to market capitalization (think SPY, IVV).

Proponents of equal weighting will argue that although the portfolio may demonstrate more volatility and risk than a market cap weighted S&P 500 tied portfolio over time (due to “more” exposure to smaller S&P 500 names and lack of overweight to the mega cap companies such as AAPL or XOM for instance). How has equal weighting the S&P 500 fared?

In the trailing five year period, RSP has out-performed SPY, +8.55% versus -4.70%, so it is clear that significant alpha to the benchmark has been realized by those managers that forayed into equal weighting (RSP debuted in April of 2003) and is quickly becoming a “seasoned veteran” of the ETF landscape. “Old schoolers” will recall when RSP from inception up until just recently was called “Rydex S&P 500 Equal Weight”, which was the case prior to the Guggenheim merger/acquisition with Rydex ETFs.

From a top down standpoint, ETF portfolio managers will notice that since RSP applies a monthly re-balance in its index methodology, the top individual equity weightings in the portfolio are vastly different from say SPY or IVV. The top five holdings of RSP currently are NFLX (0.28%), THC (0.26%), LOW (0.25%), WHR (0.25%), and GILD (0.25%) where as in the market cap weighted S&P 500 Index as tracked by SPY and IVV, the top five looks like the following: AAPL (4.30%), XOM (3.19%), GE (1.75%), CVX (1.63%), IBM (1.60%).

Guggenheim S&P 500 Equal Weight


For more information on Street One ETF research and ETF trade execution/liquidity services, contact Paul Weisbruch at pweisbruch@streetonefinancial.com.