RydexShares rolled out two additions to its menu of equal weight ETFs on August 4. Rydex S&P MidCap 400 Equal Weight ETF (EWMD) and Rydex S&P SmallCap 600 Equal Weight ETF (EWSM) join the very popular large cap Rydex S&P 500 Equal Weight ETF (RSP) to give investors access to a combined universe of 1500 U.S. stocks at equal weighting within each category.

For those who may not be familiar with the “equal weight” concept, it is a twist on the more popular capitalization weighting scheme. The S&P 500, for instance, consists of 500 stocks in proportion to their market value. Huge companies like ExxonMobil (XOM), General Electric (GE), and Apple (AAPL) have much more influence on the index that the smallest few dozen.

The equal-weighted S&P indexes on which Rydex bases RSP and now EWMD/EWSM give each stock in the index the same allocation, with regular rebalancing. The list of companies is the same as the cap-weighted index, but each company is much closer to having the same impact. The two approaches can have sharply different short-term results.

Rydex seems to be hooked on equal weighting as its niche. Late last year the company launched a line of ETFs based on equally-weighted Russell indexes. The latest launch suggests they want to keep a balance of index providers for their ETF lineup.

RWSM and RWMD both carry a 0.40% expense ratio. More information can be found at the following links.

  • EWMD summary page
  • EWSM summary page
  • EWMD/EWSM combinded fact sheet (pdf)
  • EWMD/EWSM combined prospectus (pdf)

Disclosure covering writer, editor, and publisher: Long AAPL. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.