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Inside Guggenheim's S&P 100 Equal-Weight ETF

Zacks Equity Research

Guggenheim, one of the country’s biggest ETF providers, was the first firm to offer strategic or smart beta ETFs with the launch of Guggenheim S&P 500 Equal Weight ETF RSP in 2003.  At the beginning of the year, Guggenheim had several equal weight ETFs with $12.6 billion in assets under management. Other equal weight ETFs by Guggenheim include Guggenheim S&P MidCap 400 Equal Weight ETF EWMC and Guggenheim S&P SmallCap 600 Equal Weight ETF EWSC (read: Smart Beta ETFs That Stood Out Amid Market Volatility).

The issuer recently launched its 15th equal weight ETF - Guggenheim S&P 100 Equal Weight ETF OEW targeting the U.S. large-cap space. We have highlighted some of the key points of the fund below.

Guggenheim S&P 100 Equal Weight ETF in Focus

The ETF seeks to track the performance of the S&P 100 Equal Weight Index before fees and expenses. The S&P 100 Equal Weight Index is an equal weighted version of the S&P 100 Index, a subset of 100 common stocks of the S&P 500 Index. The index has the same securities as the capitalization weighted S&P 100, but each company in the S&P 100 Equal Weight Index is allocated a fixed weight.

The S&P 100 Equal Weight Index measures the performance of the large-cap segment of the U.S. equity universe. The index uses an equal weighting strategy wherein each sector and the individual securities within them are given equal weights. As such, concentration risk is expected to be pretty low in this fund.

Presently, the fund holds a well-diversified basket of 102 stocks and has an expense ratio of 40 basis points (bps). From a sectorial perspective, the basket comprises Financials (15.6%), Health Care (15.2%), Information Technology (14.9%), Consumer Discretionary (14.2%), Industrials (13.1%) and Consumer Staples (11%).

Launched on June 30, the fund has already amassed $2.6 million in its asset base as per ETF.com. The fund is up 3.7% in the last 10 days as of July 12, 2016.

Will it be a Good Fit?

The fund could be a good choice for investors seeking a diversified exposure to U.S. large cap stocks. Currently, the U.S. markets are experiencing extreme volatility. Global growth concerns, escalating geo-political tensions, concerns over the impact of Brexit and uncertainty over the timing of the next interest rate hike in the U.S. are some of the factors to be blamed for the volatility (read: Market Fears Brexit: Volatility ETFs Take Full Advantage).

Amid such volatile times, investors seek some smart stock-selection strategies to alleviate the risks in the market. This is where equal weight ETFs come into play. These funds do a great job in managing single-security risk, thanks to their equal allocation in all securities in the basket irrespective of market capitalization. As a result, it limits the risk of a severe downfall in any particular security, providing a nice balance in the portfolio.

Additionally, with quarterly rebalancing, equal weighted funds tend to cash in on the overvalued segments and reinvest in the underperforming ones, potentially allowing for outperformance if the trend reverses. But while these have a minimal concentration risk, they charge a hefty expense ratio compared to their fundamentally/capitalization weighted counterparts.

ETF Competition

As far as competition within the space is concerned, the fund could come up against Guggenheim’s very own product RSP or funds from other providers like PowerShares Russell Top 200 Equal Weight ETF EQWL and PowerShares Russell 1000 Equal Weight ETF EQAL.

RSP is one of the most popular funds in its space managing an asset base of $9.8 billion and trading in good volumes of more than 1.2 million shares a day on average. The fund tracks the S&P 500 Equal Weight Index, which measures the performance of the top 500 U.S. companies in equal weights.

Sector-wise, Financials, Consumer Discretionary and Industrials take the top three spots with more than 48% allocation. The fund charges 40 bps and has returned 9% so far this year.

EQWL, on the other hand, is comparatively less popular with an asset base of $32.7 million and trades in low volumes of roughly 2,200 shares. The fund tracks the Russell Top 200 Equal Weight Index to provide exposure to the U.S. large-cap equity market. The fund has an expense ratio of 0.25% and has gained 6.8% in the year-to-date period (see all Large Cap ETFs here).

Though the U.S. large cap space is not much crowded, the new fund is nonetheless expected to face stiff competition from RSP, EQWS and EQAL and other equal weight ETFs.

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