A.I.M. Users Bulletin Board

[lrp42]

Just wondering....

I was just wondering about the advantages/disadvantages of holding the new Rydex "Equal Weight" sector funds versus the more traditional market cap weighted S&P 500 sector ETFs.

It seems to me that if someone holds the traditional sector ETFs then those ETFs are going to be heavily influenced by the performance of two or three stocks in that index. For example, in XLE it appears that Exxon-Mobil and Chevron account for almost 35% of the index. Exxon accounts for about 22%. In the Rydex S&P Equal Weight Energy ETF (RYE) it appears that Exxon-Mobil is only 3.28% of the index and that Chevron is 3.23%. I got those percentages from the ETF connect website --- http://www.etfconnect.com/

It appears to me that the traditional market-cap weighted indices tend to overweight the growth momentum type stocks and underweight the better value stocks. I would guess that by equally weighting each stock that overall performance would be enhanced over a complete market cycle, since the undervalued stocks might have a better growth opportunity over a long period of time.

I am not sure how each type would "AIM". Maybe the traditional market-cap weighted index would provide more volatility and more opportunities to trade.

Has anyone done any studies on this?

What opinions do you guys have about this subject?

Thanks,

Ray