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Is Guggenheim S&P 500 Equal Weight Materials ETF (RTM) a Hot ETF Right Now?

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The Guggenheim S&P 500 Equal Weight Materials ETF (RTM) made its debut on 11/01/2006, and is a smart beta exchange traded fund that provides broad exposure to the Materials ETFs category of the U.S. equity market.

What Are Smart Beta ETFs?

The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.

A good option for investors who believe in market efficiency, market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns.

There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.

Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.

This area offers many different investment choices, such as simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies; however, not all of these strategies can deliver superior results.

Fund Sponsor & Index

The fund is managed by Invesco Powershares. RTM has been able to amass assets over $250.55 M, making it one of the average sized ETFs in the Materials ETFs. RTM seeks to match the performance of the S&P 500 Equal Weight Materials Index before fees and expenses.

The S&P 500 Equal Weight Materials Index is an unmanaged equal weighted version of the S&P 500 Materials Index that consists of the common stocks of the following industries: chemicals, construction materials, containers and packaging, metals and mining, and paper and forest products that comprise the Materials sector of the S&P 500 Index.

Cost & Other Expenses

Expense ratios are an important factor in the return of an ETF and in the long-term, cheaper funds can significantly outperform their more expensive cousins, other things remaining the same.

Annual operating expenses for this ETF are 0.40%, making it on par with most peer products in the space.

It's 12-month trailing dividend yield comes in at 1.39%.

Sector Exposure and Top Holdings

It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

For RTM, it has heaviest allocation in the Materials sector --about 100% of the portfolio.

Taking into account individual holdings, Ecolab Inc (ECL) accounts for about 4.41% of the fund's total assets, followed by Newmont Mining Corp (NEM) and Monsanto Co (MON).

Its top 10 holdings account for approximately 41.67% of RTM's total assets under management.

Performance and Risk

So far this year, the ETF has lost about -3.18%, and is up roughly 18.15% in the last one year (as of 04/17/2018). RTM has traded between $94.10 and $118.23 in the past 52-week period.

The fund has a beta of 1.22 and standard deviation of 17.30% for the trailing three-year period, which makes RTM a medium choice in this particular space. With about 25 holdings, it has more concentrated exposure than peers.

Alternatives

Guggenheim S&P 500 Equal Weight Materials ETF is a reasonable option for investors seeking to outperform the Materials ETFs segment of the market. However, there are other ETFs in the space which investors could consider.

Materials Select Sector SPDR Fund (XLB) tracks Materials Select Sector Index and the FlexShares Morningstar Global Upstream Natural Resources Index Fund (GUNR) tracks Morningstar Global Upstream Natural Resources Index. Materials Select Sector SPDR Fund has $4.96 B in assets, FlexShares Morningstar Global Upstream Natural Resources Index Fund has $5.49 B. XLB has an expense ratio of 0.13% and GUNR charges 0.46%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Materials ETFs.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.