Rydex aims to 'own' equal-weight-ETF market

Rydex SGI, the No. 9 player in the ETF market, wants to carve out a name for itself as a provider of equal-weight ETFs. "We want to own it," Tony Davidow, managing director and portfolio strategist, said about the equal-weight niche. Rydex has 34 ETFs with $7.7 billion in assets. Sixteen of them are based on equally weighted indexes, which give the same weight to all stocks in an index, unlike capitalization-weighted indexes that are dominated by larger companies. In December and January, Rydex launched six new ETFs based on equally weighted indexes, including three broad-based international funds. In an interview, Mr. Davidow says the firm will roll out several new products this year. He declined to give specifics, but hinted that one product might be an equal-weight Japan fund — the first single-country foreign ETF based on an equal-weight index. Proponents of equal-weight indexes say the strategy protects investors from bubbles, by re-balancing an index out of bubble stocks and into out-of-favor issues. Detractors say equally weighted indexes benefit from a small-capitalization and value bias, and investors could produce the same returns simply by diversifying into small- and midcap value ETFs. Mr. Davidow acknowledged that equal weighting does create a small-cap effect, but said some of the apparent extra return from equal weighting comes from the quarterly re-balancing of the indexes. "Because of the quarterly re-balancing, we will rotate between growth and value, so I don't buy [the idea that] equal weighting is just a small-cap-value play," he said.