Often, certain events in the market highlight alternative indexing
strategies that go beyond price-weighting or market-cap weighting.
In this case, one equal weight exchange traded fund (
) in particular is taking the spotlight.
Rydex S&P Equal Weight ETF (NYSEArca:
outperformed the market capitalization-weighted S&P 500 Index
in the last year - sporting a 34.4% return compared to the S&P
500's return of 23.5%. So far this year, it's up 0.5% compared with
the S&P, which is down 3.7%. [
Other Ways to Play the S&P 500 with ETFs.
Equal-weighting is just as the name implies: each component has
the same weight as the next, without regard to size,
says Ken Hawkins for Forbes
. One point of caution: volatility has a tendency to be higher in
the equal-weighted index vs. the S&P 500. This simply reflects
the greater weight given to small-caps, which themselves are more
This ETF is the industry's first alternatively-weighted fund.
RSP touts approximately $2 billion in assets, and the fund has
experienced more than 200% asset growth since the beginning of
How Indexing Affects Your ETF.
What's behind the outperformance? RSP has exposure to some of
the small-cap companies within the S&P 500, which are believed
to be more flexible and nimble during a recovery from a recession.
So the smaller-cap companies are weighted just the same as some of
the heavyweights, giving equal exposure to companies of all sizes.
Equal Weight vs. Revenue Weight.
Equal weight is generally said to outperform over time, while a
cap-weighted approach tends to do well in specific market
For more stories about RSP, visit our
Tisha Guerrero contributed to this article.
Read the disclaimer
; Tom Lydon is a board member of Rydex|SGI.