ETF Exclusive: Guggenheim Partners Buys Rydex

by on February 16, 2010 | ETFs Mentioned:

A group led by financial services firm Guggenheim Partners, which bought Lisle, Illinois-based ETF issuer Claymore last year, has reached a deal to acquire Security Benefit Corp., the parent company of ETF issuer Rydex SGI.The group led by Guggenheim will make an investment of approximately $400 million for a controlling interest in Security Benefit. According to a press release (PDF), the deal is expected to close in the third quarter.

Using the figures from the latest industry snapshot from the National Stock Exchange, a combined Claymore/Rydex ETF family would have total assets under management of about $8.4 billion, making it the seventh largest ETF issuer by AUM. The combined firm would maintain a market share of about 1% of the ETF market.

The marriage of the two ETF firms seems to be a pretty good fit from a product line perspective. Rydex’s ETF products focus around four key areas, including 2x leveraged and inverse leveraged ETFs, equal-weighted ETFs, pure style funds, and CurrencyShares products. Claymore, on the other hand, specializes targeted niche ETFs, such as the Stealth ETF (STH) Defensive Equity Index ETF (DEF), and Insider ETF (NFO). The company also offers several international ETFs, and the line of China products, including the first all-cap (YAO) and small-cap (HAO) China funds, have become particularly popular with investors.

When Security Benefit acquired Rydex more than two years ago, the company seemed poised to burst onto the ETF scene, particularly in the leveraged ETF space that was relatively new at the time. But instead Rydex stalled, suffering from surprising neglect of promising ETF products. The issuer has done almost no marketing to promote its funds, and has been a virtual no-show at industry events and conferences.

The Rydex S&P Equal Weight ETF (RSP) is perhaps the one exception, as this fund accounts for about 30% of total issuer assets. RSP, which holds all components of the S&P 500 in equal proportions, saw more than $500 million in cash flows in 2009, while the remainder of the Rydex products brought in just $200 million. Rydex products are now an afterthought in the leveraged ETF space dominated by ProShares and Direxion, and WisdomTree’s currency products have gained ground on many CurrencyShares products (see a breakdown of the key attributes of currency ETF products here).

We first reported in February’s edition of ETF Edge that a Claymore/Guggenheim/Rydex partnership was imminent, noting that “discussions between Guggenheim and Rydex have been ongoing for sometime, and a deal could be announced as early as February.” (if you don’t have a subscription to ETF Edge, sign up for a free trial or read more here). Now that the deal has become official, it will be interesting to what Guggenheim does to revive the Rydex line of ETF products.

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Disclosure: No positions at time of writing.