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The Truth About Alternative Weighting Methodologies (And ETFs)

Michael Johnston — Tue, 07 Feb 2012 14:00:53 +0000

As indexes have been essentially transformed into investable assets in part because of surging interest in ETFs, many advisors and investors have begun to take a closer look at the details of the methodologies behind the construction and maintenance of these benchmarks. Cap weighting, where the largest weights are afforded to the largest companies, has remained by far the most popular option–thanks in no small part to the low costs and low maintenance requirements associated with this approach. But alternative weighting strategies have been growing in popularity as well, emerging as opportunities to generate excess returns by simply tweaking the manner in which weights are assigned to individual securities [see also The Ten Commandments of Commodity Investing]. There has been a significant amount of debate on the merits of these weighting methodologies, including at a panel last month at the Inside ETFs Conference presented by Index Universe. Many view the [...]

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RSP vs. SPY: 2011 At a Glance

Jared Cummans — Thu, 19 Jan 2012 14:30:01 +0000

SPY has long been the king of exchange traded products. Hitting the market in 1993, this fund has amassed nearly $100 billion in assets making it not only the largest ETF in the world, but also one of the largest funds available to investors. Its ultra low expenses and massive daily volume have allowed it to be both a trading instrument as well as an integral part of long term portfolios. But for the past few years, the fund has been in a stiff competition with its equal weighted counterpart, the S&P Equal Weight ETF (RSP) [see also 12 High-Yielding Commodities For 2012]. Rivalry The rivalry between these two funds can be traced back since RSP debuted in 2003. While SPY has won the battle in some years, others have seen RSP wipe the floor with the ETF top-dog. For those unfamiliar with RSP’s strategy, the fund is comprised of the [...]

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Equal Weight ETFs: Comparing Similar (But Different) Strategies

Michael Johnston — Mon, 05 Dec 2011 14:00:26 +0000

In the universe of equity ETFs, market capitalization weighting strategies are incredibly dominant. The majority of the hundreds of domestic and international stock ETFs available to U.S. investors are linked to cap-weighted benchmarks, and the lion’s share of assets is in products that utilize this well known methodology. But in recent years, thanks in part to the ETF boom, alternative weighting methodologies have been gaining traction. For those seeking to steer clear of cap-weighting and all of its potential drawbacks, equal weighting has emerged as a popular alternative. Part of the appeal of this approach may lie in the apparent simplicity; instead of giving the biggest allocations to the most valuable components of an index, equal weighting generally involves assigning an equivalent allocation to each security that meets the membership requirements for the benchmark. Breaking the link between stock price and index weight eliminates concerns that often are attached to [...]

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Ten Unexpected Observations On YTD ETF Returns

Michael Johnston — Sun, 04 Dec 2011 16:00:16 +0000

With the finish line in sight, it’s fairly safe to say that 2011 will be remembered by most investors as a wild, back-and-forth year that brought plenty of both hope and despair. A hot start raised optimism of a continued recovery after a generally impressive 2011, but the summer months were anything but relaxing; major indexes suffered some of the worst losses since the recent recession. In examining the year-to-date performances for the 1,000+ ETPs that have been around since the beginning of the year, there are a number of interesting figures that jump out, including both pleasant surprises and bitter disappointments–and some that are just plain confusing [the complete, sortable, document is available in ETF Edge--sign up for a free 7-day trial to get full access]. 10. Commodities Holding Up This year has been a tumultuous period for risky assets, especially over the last several months. So I was [...]

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UBS Launches Risk On / Risk Off ETNs

Michael Johnston — Thu, 01 Dec 2011 14:00:49 +0000

UBS, the issuer behind one of the broadest lineups of ETNs available to U.S. investors, continued the aggressive expansion of its product lineup this week with the introduction of two unique offerings. The company rolled out a pair of blunt instruments designed to be used in high level “risk on / risk off” trades, a term that has become popular in recent months as risky assets have exhibited strong correlations with one another and so-called “safe havens” have thrived whenever uncertainty pops up. The new ETRACS Fisher Gartman Risk On On ETN (ONN) will seek to replicate the Fisher-Gartman Risk Index, a benchmark that includes long positions in various risky asset classes such as stocks and commodities and short positions in traditional safe haven investments such as sovereign bonds. The index consists of 150% long positions combined with 50% short exposure, resulting in a net 100% long portfolio: Sector Long [...]

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25 Things Every Financial Advisor Should Know About ETFs

Michael Johnston — Wed, 02 Nov 2011 14:29:08 +0000

The rapid expansion of the ETF industry has been one of the most important developments of the last several decades to financial professionals; as the lineup of exchange-traded products has surged past 1,300, financial advisors now have more tools in their toolkits than ever before to help construct client portfolios. With these new financial products comes a responsibility to understand the various risk factors and nuances of exchange-traded products, and as the industry has expanded rapidly the amount of information to digest has swelled as well. While ETF education must be an ongoing process, there are a number of basics that can enhance overall understanding, identify opportunities and limitations, and generally promote a better experience with ETFs: 1. Volume ≠Liquidity Many advisors and investors like to implement what can best be described as “liquidity screens,” refusing to consider products that don’t have a certain average daily trading volume (25,000 shares [...]

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Large Cap ETFs: Studs and Duds

Jared Cummans — Mon, 26 Sep 2011 13:45:56 +0000

This year started off strong, as it looked like the economic recovery was finally gaining some steam. Major indexes trended upwards for the first seven months of the year, with the S&P 500 hitting 1,370 at its peak. It marked good progress as we exited the “Lost Decade” where most indexes finished where they were back in 2000, marking a ten year drought of little to no returns. But just when it seemed like we finally found our footing, a number of factors combined to create the perfect storm for equities, slaughtering a variety of investments and benchmarks [see also Three ETFs For ‘Operation Twist’]. First, markets took a hit when Congress nearly failed to extend the debt ceiling, which would have essentially frozen government spending. Though the legislation was finally passed, investor confidence was rattled as it seemed that Washington was more concerned about politics than the well-being of [...]

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Report: Guggenheim To Rebrand Rydex ETFs

Michael Johnston — Tue, 20 Sep 2011 23:48:52 +0000

Rydex, the ETF issuer known for its lineup of equal-weighted equity ETFs, will reportedly be rebranded under parent company Guggenheim. According to a Reuters report, the company is being renamed Guggenheim Investments, and will rebrand the Rydex lineup of ETFs under that name. Guggenheim led a group of investors that acquired Security Benefit Corp., the parent of Rydex, last year. In 2009, Guggenheim bought Claymore, and it had been widely expected that the two ETF businesses under the Guggenheim umbrella would eventually be merged. The Rydex ETF lineup includes a pair of leveraged S&P 500 ETFs–remnants of a once robust leveraged ETF suite–as well as products linked to equal weight indexes and “pure style” ETFs. The largest Rydex ETF, the S&P Equal Weight ETF (RSP), has about $2.6 billion in assets. That ETF holds the same securities held by ETFs linked to the S&P 500 (such as the ultra-popular SPY), [...]

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Rydex Rolls Out Mid Cap, Small Cap Equal Weight ETFs

Michael Johnston — Fri, 05 Aug 2011 14:00:49 +0000

Rydex, the issuer behind the ultra-popular S&P Equal Weight ETF (RSP), announced this week the introduction of two new ETFs that offer equal-weighted exposure to the S&P MidCap 400 Index and S&P SmallCap 600 Index. The new ETFs include: S&P MidCap 400 ETF (EWMD) S&P SmallCap 600 ETF (EWSM) Each will each offer exposure to the same basket of securities included in the popular market-cap weighted equity indexes. But instead of assigning weights to individual securities based on market capitalization, each stock will receive an equivalent weighting in the underlying index. Equal Weight 101 Rydex was a pioneer in the development of equal-weighted indexes, and now offers 18 ETFs linked to equal-weighted benchmarks. By far the most popular of those is RSP, which offers an alternative for large cap U.S. equity exposure. That fund, which has more than $3 billion in assets, includes all components of the S&P 500. But [...]

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Three Intriguing Alternatives To Popular ETFs (SPY, XLF, FXI)

Jared Cummans — Fri, 29 Jul 2011 14:00:10 +0000

As the ETF industry has maintained its strong growth, investors have grown increasingly comfortable with establishing exposure to various markets utilizing the exchange-traded structure. Now, with 1,300+ funds in the space, there is an ETF for almost any investment objective, with further innovation still on the way. But as the industry rapidly expands, some funds will be on the receiving end of ETF growing pains, as many have a hard time trusting younger or less-popular products; but this lack of faith may represent a major missed opportunity for some investors. In many cases, investors can be quick to take an ETF’s reputation or age at face value, and look no further. And it would be hard for anyone to accuse some of these ultra-popular and successful products of not meeting expectations, especially for those who value liquidity above all else. But when investors begin to look beyond the surface of [...]

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ETF Database » RSP

The Truth About Alternative Weighting Methodologies (And ETFs)

Related Posts:

RSP vs. SPY: 2011 At a Glance

Related Posts:

Equal Weight ETFs: Comparing Similar (But Different) Strategies

Related Posts:

Ten Unexpected Observations On YTD ETF Returns

Related Posts:

UBS Launches Risk On / Risk Off ETNs

Related Posts:

25 Things Every Financial Advisor Should Know About ETFs

Related Posts:

Large Cap ETFs: Studs and Duds

Related Posts:

Report: Guggenheim To Rebrand Rydex ETFs

Related Posts:

Rydex Rolls Out Mid Cap, Small Cap Equal Weight ETFs

Related Posts:

Three Intriguing Alternatives To Popular ETFs (SPY, XLF, FXI)

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