Rydex: Rising From The Ashes?

by on September 14, 2010 | ETFs Mentioned:

Given the impressive pace of expansion in the ETF space in recent years, SEC filings detailing ideas for new products have become commonplace. There are currently hundreds of ETFs at various stages of the registration process, including active ETFs, esoteric quant-based products, and just about anything an investor could dream up. But a recent filing came as a bit of a surprise, not so much because of the funds outlined, but because of the firm making the filing: Rydex, the Maryland-based firm perhaps best known for its currency products, recently filed details on 19 proposed ETFs [see Ten ETFs That Don't Exist, But Should].

Rydex has been a bit of an enigma in the ETF industry. Founded by the late Skip Viragh, Rydex was an early entrant to the ETF game, and a pioneer in the leveraged ETF and currency ETF spaces. Rydex also was among the first to offer equity ETFs linked to equal-weighted indexes, providing an alternative to investors frustrated with some of the potential drawbacks of popular cap-weighting methodologies. The addition of “pure style” funds–growth and value ETFs that don’t feature the significant overlap characterizing many funds that purport to track a specific investment style–made Rydex a four-headed ETF machine [see The Truth About Value and Growth ETFs].

But when Rydex merged with Security Global Investors in early 2009, the promising line of ETF products seemingly became a secondary concern, and Rydex began to lose ground to competitors. Earlier this year the firm essentially abandoned the leveraged ETF space, shuttering all but two of its 2x funds (the 2x and -2x S&P 500 ETFs–RSU and RSW, respectively–were the lone survivors). The firm that once dominated the leveraged ETF landscape has now essentially conceded the space to ProShares and Direxion.

Rydex is still a big player in the currency ETF space, although WisdomTree has made a big push in that arena in recent years, eating into market share. Through August, Rydex assets had grown only about 1% from the same period a year earlier. As a whole, the ETF industry had grew by more than 20% during that time period. Rydex was leapfrogged by both Direxion and WisdomTree on the ETF totem pole, and now comes in as the eighth largest issuer by total assets.

But things appear to be turning around at Rydex. The firm was acquired by Guggenheim in February 2010, and it seems that the New York-based financial juggernaut is beginning to right the ship. The proposed ETFs detailed in the recent SEC filing would represent a significant build-out of a product line that has already proven to be popular with investors; the Rydex S&P Equal Weight (RSP), which holds all components of the S&P in equal allocations, has nearly $2 billion in assets under management [see Beyond SPY: Nine Alternative S&P 500 ETFs].

Rydex now has plans for 19 new ETFs, each of which would seek to replicate an equal-weighted spin-off of popular equity indexes. Whereas existing equal-weighted Rydex funds are linked to S&P indexes, the proposed funds would cover benchmarks maintained by Russell and MSCI [see a database of ETF indexes]:

  • Russell MidCap Equal Weight ETF
  • Russell 1000 Growth Equal Weight ETF
  • Russell 1000 Value Equal Weight ETF
  • Russell 2000 Growth Equal Weight ETF
  • Russell 2000 Value Equal Weight ETF
  • Russell 3000 Growth Equal Weight ETF
  • Russell 3000 Value Equal Weight ETF
  • Russell Global 1000 Equal Weight ETF
  • Russell Global Ex-U.S. Large Cap Equal Weight ETF
  • Russell Emerging Markets Large Cap Equal Weight ETF
  • Russell Emerging EMEA Large Cap Equal Weight ETF
  • Russell 1000 Equal Weight ETF
  • Russell 2000 Equal Weight ETF
  • Russell 3000 Equal Weight ETF
  • Russell BRIC Equal Weight ETF
  • Russell Greater China Large Cap Equal Weight ETF
  • MSCI EAFE Equal Weight ETF
  • MSCI Emerging Markets Equal Weight ETF
  • MSCI ACWI Equal Weight ETF

There is, of course, no guarantee that these products will ever make it to market, let alone attract big cash inflows. But given the level of interest in an equal-weighted S&P 500, it would be somewhat surprising if demand for equal-weighted versions of these other popular benchmarks don’t materialize. Regardless, it’s good to see that Rydex, which has always maintained a line of unique products backed by compelling investment theses, is back moving in the right direction [also read Are Your Cap-Weighted ETFs Leaders Or Laggards?].

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Disclosure: No positions at time of writing.