Rydex to Shut Down Leveraged, Inverse ETFs

Apr.27.10 | About: Guggenheim 2x (RSU)

Leveraged and inverse ETFs have a surge in popularity in recent years, as risk hungry investors embraced these vehicles as a means of achieving a number of different investment goals. But Rydex, one of the earliest ETF issuers to offer these products, has largely missed out on this boom. The Rockville, Maryland-based firm announced last week that it will close the doors on 12 of its leveraged and inverse ETFs, eliminating all but two of the products in its ETF family. Friday, May 21 will be the last day of trading for the following ETFs:

  • Rydex 2x Russell 2000 ETF (RRY)
  • Rydex 2x S&P MidCap 400 ETF (RMM)
  • Rydex Inverse 2x Russell 2000 ETF (RRZ)
  • Rydex Inverse 2x S&P MidCap 400 ETF (RMS)
  • Rydex 2x S&P Select Sector Energy ETF (REA)
  • Rydex 2x S&P Select Sector Financial ETF (RFL)
  • Rydex 2x S&P Select Sector Health Care ETF (RHM)
  • Rydex 2x S&P Select Sector Technology ETF (RTG)
  • Rydex Inverse 2x Select Sector Energy ETF (REC)
  • Rydex Inverse 2x Select Sector Financial ETF (RFN)
  • Rydex Inverse 2x Select Sector Health Care ETF (RHO)
  • Rydex Inverse 2x Select Sector Technology ETF (RTW)

The 12 ETFs being closed have aggregate assets of about $129 million, or less than 2% of total assets in Rydex ETFs. The two leveraged ETFs staying open, the Rydex 2x S&P 500 ETF (NYSEARCA:RSU) and Rydex Inverse 2x S&P 500 ETF (NYSEARCA:RSW), had assets of about $108 million and $90 million, respectively, at the end of the first quarter. ProShares and Direxion are the biggest players in the leveraged and inverse ETF space, with assets of about $24.5 billion and $5.0 billion, respectively, at the end of the first quarter.

Rydex: Four Product Lines Becoming Three

Rydex maintains one of the more interesting product lines in the ETF space, and this latest move could be an indication of a new strategy under a new owner (Rydex struck a deal with Guggenheim Partners earlier this year for a controlling interest in the company). Besides the leveraged products, Rydex ETFs fall into one of three primary categories: currency products, “pure style” ETFs, and equal-weighted funds. The CurrencyShares line of ETFs includes nine funds offering exposure to both developed and emerging currencies, while the “pure style” ETFs offer more targeted twists on the concepts of value and growth stocks (see Under The Hood Of Value And Growth ETFs).

But the company’s most popular ETFs are the equal-weighted funds that offer a twist on many widely-followed equity benchmarks. Instead of determining the weighting given to each component based on market capitalization, each stock included in these ETFs is given an equal allocation. By breaking the link between price and weighting, this strategy solves some of the pitfalls cap weighting, including the tendency to overweight overvalued equities. The Rydex S&P Equal Weight (NYSEARCA:RSP), which includes all components of the S&P 500 in equal proportions, currently has about $2.5 billion in assets (see Beyond SPY: Nine Alternatives To S&P 500 ETFs).

After closing down the 12 leveraged ETFs, Rydex will offer 28 exchange-traded products.

Disclosure: No positions at time of writing.