Leaner, Meaner Sector ETFs
The ETF industry continues to evolve before our eyes, with a new line of nine sector ETFs from Rydex debuting Tuesday. Instead of weighting by market cap, like the first generation of sector ETFs, or by a fundamental measure like dividend yield, the Rydex funds weight stocks equally.
The practical effect is that the biggest stocks by market cap will have less of an influence on returns. The mega caps usually don't provide leadership until the end of the stock market cycle, so it makes sense to have a tilt towards smaller companies most of the time.
Equal weighting of the funds brings the average market cap down considerably. The average market cap for the Industrial Select Sector SPDR (XLI) is $99.78 billion, but only $25.84 billion for the similar Rydex S&P Equal Weight Industrials (RGI).
Rydex first did this with an S&P 500 fund, the Rydex S&P Equal Weight Index Fund (RSP). In addition to the industrial fund, it has now brought to market:
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