Markets

Russell Unveils Sector Equal-Weighting

Russell Investments, the index and financial analytics provider, launched a series of domestic and global equal-weighted equity indexes today that will become benchmarks to more than a dozen Rydex/SGI ETFs currently in the works.

The new indexes add a twist to conventional equal-weighting methodology by first allocating equally between nine industry sectors-consumer discretionary, consumer staples, energy, financial services, health care, materials and processing, producer durables, technology and utilities-then allocating equally to companies within those sectors.

That keeps each sector representation at 11 percent, which not only minimizes sector risk but also diversifies exposure, Ken O'Keeffe, regional director for Russell Indexes, told IndexUniverse.com in a telephone interview. Conversely, a conventional equal weighting can still skew an index toward certain sectors.

"From a performance standpoint, our analysis shows that sector equal-weight indexes have provided for a better absolute return with lower volatility than conventional equal-weight indexes," O'Keeffe said.

Demand for alternative-weighting products has been on the rise, and Russell's new benchmarks meet Rockville, Md.-based Rydex/SGI's "investability and capacity" needs, O'Keefe said. Rydex has 19 equal-weighted equity ETFs focused on the U.S., global and emerging markets in the works. Sixteen of them will use Russell indexes for benchmarks, O'Keeffe said.

Rydex's most popular ETF, the $1.7 billion Rydex S&P Equal Weight ETF (NYSEArca:RSP), also employs an equal weighting methodology, and it has outperformed the

SPDR S&P 500 ETF (NYSEArca:SPY) this year twofold, as reported in a story we ran Friday.

How The Benchmarks Work

The five benchmarks that debuted today are the first in a lineup of indexes that will be rolled out through 2011. They are:

  • The U.S. Large Cap Russell 1000 Equal Weight Index
  • The U.S. Small Cap Russell 2000 Equal Weight Index
  • The Russell Midcap Equal Weight Index
  • The Russell BRIC Equal Weight Index
  • The Russell Greater China Large Cap Equal Weight Index

The series of Russell benchmarks screens out illiquid securities, while keeping an eye on turnover and rebalancing issues, the company said in a press release. The indexes will be rebalanced quarterly.

While turnover in an equal-weighting methodology should be higher than most market-cap-weighted indexes, which translates into higher costs, it will still be lower than active approaches, O'Keeffe said.

"The market-cap approach remains the most popular and we believe it is the best way to truly reflect market segments," Rolf Agather, managing director of index research & innovation at Russell Investments, said in the press release. "However, we also recognize increasing interest in alternative weighting products that offer unique beta exposure."

About The ETFs

Of the 19 ETFs Rydex is planning on launching, all but three are linked to the Russell equal-weight index family.

The funds and their annual expense ratios, according to the September SEC filing, are:

  • Rydex Russell MidCap Equal Weight ETF, 0.55 percent
  • Rydex Russell 1000 Equal Weight ETF, 0.55 percent
  • Rydex Russell 1000 Growth Equal Weight ETF, 0.55 percent
  • Rydex Russell 1000 Value Equal Weight ETF, 0.55 percent
  • Rydex Russell 2000 Growth Equal Weight ETF, 0.55 percent
  • Rydex Russell 2000 Value Equal Weight ETF, 0.55 percent
  • Rydex Russell 2000 Equal Weight ETF, 0.55 percent
  • Rydex Russell 3000 Growth Equal Weight ETF, 0.55 percent
  • Rydex Russell 3000 Equal Weight ETF, 0.55 percent
  • Rydex Russell Global 1000 Equal Weight ETF, 0.70 percent
  • Rydex Russell Global Ex-U.S. Large Cap Equal Weight ETF, 0.70 percent
  • Rydex Russell Emerging Markets Large Cap Equal Weight ETF, 0.90 percent
  • Rydex Russell Emerging EMEA Large Cap Equal Weight ETF, 0.90 percent
  • Russell 3000 Value Equal Weight ETF, 0.55 percent
  • Rydex Russell BRIC Equal Weight ETF, 0.90 percent
  • Rydex Russell Greater China Large Cap Equal Weight ETF, 0.90 percent

Don't forget to check IndexUniverse.com's ETF Data section.

Copyright ® 2010 Index Publications LLC . All Rights Reserved.

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


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

In This Story

RSP SPY

Other Topics

ETFs