S&P 500 Equal Weight ETF Pulls Its Weight

By
A A A
Share |

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 ( ETF ) in particular is taking the spotlight.

The Rydex S&P Equal Weight ETF (NYSEArca: RSP ) outperformed the market capitalization-weighted S&P 500 Index and the SPDRs (NYSEArca: SPY ) 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 volatile.

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 2009. [ 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 conditions.

For more stories about RSP, visit our RSP category .

Tisha Guerrero contributed to this article.

Read the disclaimer ; Tom Lydon is a board member of Rydex|SGI.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , ETFs

Referenced Stocks: ETF , RSP

ETF Trends

ETF Trends

More from ETF Trends:

Related Videos

Stocks

Referenced

Most Active by Volume

89,970,926
  • $16.15 ▲ 0.12%
77,131,582
  • $58.94 ▼ 1.31%
67,336,935
  • $26.56 ▲ 1.68%
48,814,124
  • $86.20 ▲ 0.02%
47,526,126
  • $23.21 ▲ 0.78%
44,660,424
  • $23.91 ▲ 6.36%
38,799,699
  • $4.289 ▲ 4.36%
36,199,890
  • $40.01 ▼ 0.97%
As of 4/17/2014, 04:07 PM