Guggenheim Investments, the eighth-largest U.S. issuer of exchange-traded funds and one of the pioneers of bringing the equal-weight index methodology to the ETF universe, is adding to its already substantial lineup of such ETFs Thursday with the debut of the Guggenheim S&P 100 Equal Weight ETF (Rydex ETF Trust (NYSE: OEW)).
Following The Index
The Guggenheim S&P 100 Equal Weight ETF, as its name implies, tracks the S&P 100 Equal Weight Index. That benchmark is home to the same constituents as the market capitalization-weighted S&P 100 Index. The iShares S&P 100 Index (ETF) (NYSE: OEF) tracks the cap-weighted S&P 100.
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The S&P 100 Equal Weight Index allocates over 16 percent of its weight to financial services stocks and 15.1 percent to technology names. Industrial and healthcare names also command weights of at least 10 percent while consumer discretionary and consumer staples names are the other sectors garnering double-digit allocations in the index.
OEW is the 15th equal-weight ETF in Guggenheim's stable, which includes the popular Guggenheim S&P 500 Equal Weight ETF (NYSE: RSP) and a batch of equal-weight sector ETFs, several of which are easily topping their cap-weighted rivals this year.
“To be included, the companies should be among the larger and more stable companies in the S&P 500®, and must have listed options. Sector balance is considered in the selection of companies for the cap-weighted S&P 100®, which is widely used for derivatives and is the index underlying the OEX options,” according to a statement issued by Guggenheim.
Welcoming OEW's Holdings
In the S&P 100, the top 20 stocks represent 45 percent of that index, but in OEW's underlying index, that percentage falls to 20 percent.
“Cap-weighting can lead to overconcentration in a small group of the index’s largest stocks. Additionally, cap-weighting can cause a bias towards companies that have experienced growth runs. This may hamper performance by overweighting overvalued stocks and, conversely, underweighting undervalued ones,” said Guggenheim Managing Director Bill Belden in the statement.
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