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Rydex introduced on Wednesday (12/08/10) five new ETFs based on equal weight indexes from Russell and MSCI. “Equal weight ETFs offer a compelling alternative to traditional market cap-weighted ETFs,” said Mike Byrum, chief investment officer, quantitative strategies for Rydex. “Not only do equal weight funds employ a disciplined quarterly rebalance, a practice which can result in selling high and buying low, they also offer increased diversification advantages across the constituents within each index.”

I’ve long been a fan of equal weight investing. For sector investing, where Rydex has offered a family of equal weight ETFs for many years, it logically is more appealing to gain exposure to a sector by owning the stocks in that sector equally. When you cap weight them, you are shifting away from sector exposure toward individual company and capitalization exposure. Equal weighting could also be considered common sense weighting. If you were to ask 100 people to build a portfolio of 10 stocks, how many of those people would use cap weighting versus equal weighting when buying those ten stocks?

The investing world has enjoyed the benefits of Rydex S&P 500 Equal Weight (NYSEARCA:RSP) and the equal weight sectors ETFs for years. Now Rydex is extending those benefits with the addition of five new ETFs, with the three domestic funds each offering multiple levels of equal weighting:

Rydex Russell 1000 Equal Weight ETF (NYSEARCA:EWRI) provides equal weight exposure to nine sectors (11.1% each) and then equal weights the stocks of the Russell 1000 within each sector at an expense ratio of 0.40%. Additional information is located in the overview and EWRI fact sheet (pdf).

Rydex Russell 2000 Equal Weight ETF (NYSEARCA:EWRS) provides equal weight exposure to nine sectors (11.1% each) and then equal weights the stocks of the Russell 2000 within each sector at an expense ratio of 0.40%. Additional information is located in the overview and EWRS fact sheet (pdf).

Rydex Russell Midcap Equal Weight ETF (NYSEARCA:EWRM) provides equal weight exposure to nine sectors (11.1% each) and then equal weights the nearly 800 stocks of the Russell MidCap within each sector at an expense ratio of 0.40%. Additional information is located in the overview and EWRM fact sheet (pdf).

Rydex MSCI EAFE Equal Weight ETF (NYSEARCA:EWEF) provides equal weight exposure across all 965 stocks of the MSCI EAFE developed markets at an expense ratio of 0.55%. The resulting sector weighting is Financials 22.8%, Industrials 19.5%, Consumer Discretionary 14.7%, Materials 11.8%, Consumer Staples 6.9%, Technology 6.7%, Health Care 5.4%, Utilities 4.8%, and Energy 4.0%. The process yields a country weighting of Japan 33.1%, UK 11.1%, France 8.7%, Australia 7.9%, Germany 5.2%, and others 34.0%. Additional information is located in the overview and EWEF fact sheet (pdf).

Rydex MSCI Emerging Markets Equal Weight ETF (NYSEARCA:EWEM) provides equal weight exposure across the 754 stocks of the MSCI Emerging Markets Index at an expense ratio capped at 0.70%. The resulting sector weighting is Financials 23.2%, Industrials 14.5%, Materials 14.4%, Technology 10.8%, Consumer Discretionary 9.4%, Consumer Staples 8.4%, Energy 6.3%, Utilities 5.7%, Telecommunications 5.6%, and Health Care 1.8%. The process yields a country weighting of China 16.6%, Taiwan 15.6%, South Korea 13.0%, Brazil 9.4%, India 8.1%, and others 37.3%. Additional information is located in the overview and EWEM fact sheet (pdf).

Additionally, the Rydex MSCI All Country World (ACWI) Equal Weight ETF (NYSE:EWAC) is estimated to begin trading on January 12, 2011. All six funds are covered in the prospectus.

These are the first new ETFs from Rydex in more than two years. Competition is very heavy in the ETF/ETN space at this time with many sponsors struggling to differentiate themselves. Rydex appears to positioning themselves as the equal weight ETF provider.

Disclosure covering writer, editor, and publisher: No positions in any of the securities mentioned. 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.

Source: Five New Equal Weight ETFs From Rydex