Guggenheim launches first equal weight S&P 100 ETF

Jul 8th, 2016 | By | Category: Alternatives / Multi-Asset

US-based exchange-traded fund provider Guggenheim Investments has launched the Guggenheim S&P 100 Equal Weight ETF (NYSE Arca: OEW), the first smart beta ETF to provide investors with equal-weight access to the S&P 100 Index. 

Guggenheim launches first ETF to equal weight S&P 100 equities

William Belden, Managing Director and Head of ETF Business Development for Guggenheim Investments.

The widely-quoted cap-weighted S&P 100 Index consists of 100 companies selected from the S&P 500. To be included, the companies should be among the larger and more stable companies in the S&P 500, and must have listed options. Sector balance is considered in the selection of companies for the cap-weighted S&P 100.

“OEW offers strategic beta exposure to large, blue-chip stocks across multiple industry groups and could serve as a core holding in a diversified portfolio,” said William Belden, Managing Director and Head of ETF Business Development for Guggenheim Investments. “OEW’s portfolio constituents typically are household names with strong brand recognition and global operations.”

Equal-weight strategies may be able to outperform their market cap-weighted benchmarks as they are able to diversify away from concentrated positions in the largest constituents of the index. For example, the top 20 companies in the cap-weighted S&P 100 account for roughly 45% of the index’s performance where, by definition, the same firms account for 20% of the equal weight version.

“Cap-weighting can lead to overconcentration in a small group of the index’s largest stocks,” added Belden. “Additionally, cap-weighting can cause a bias towards companies that have experienced growth runs. This may hamper performance by overweighting overvalued stocks and, conversely, underweighting undervalued ones.”

The performance of the equal-weight S&P 100 compared to its cap-weighted alternative does support this theory; the equal-weight version is up 1.67% year-to-date (5 July 2016) compared to 1.46% for the cap-weighted version. Furthermore, over the past ten years, the equal-weight S&P 100 has returned 5.59% per annum, compared to 4.74% for the cap-weighted version.

Philip Murphy, vice president, S&P Dow Jones Indices, said: “We are excited that Guggenheim has licensed the S&P 100 Equal Weight Index to grow its family of equal-weighted ETFs, which track S&P-branded indices. Unlike market-cap weighted indices, every constituent of the S&P 100 Equal Weight Index has the same impact on performance. The unique design of the index provides a balanced view of the industry-leading companies in every sector.”

As of 5 June 2016 the ETF has significant exposure to the financials (15.3%), information technology (14.8%), health care (14.3%), industrials (14.1%), consumer discretionary (14.0%) and consumer staples (11.2%) sectors.

The fund has a total expense ratio of 0.40%.

It is the 15th addition to Guggenheim’s equal-weight ETF product line. The other members of the suite include ETFs offering equal-weight exposure to the S&P 500 Index, S&P MidCap 400 Index, S&P SmallCap 600 Index, each of the ten S&P 500 sector indices, as well as equal country weight to the MSCI Emerging Markets Index.

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