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By Michael Rawson, CFA | 01-07-2011 01:19 PM

Rydex Equal-Weights the World

Rydex's Tony Davidow discusses the firm's philosophy behind the Rydex equal-weight international and sector funds.

Michael Rawson: Hello. I'm Michael Rawson, ETF analyst with Morningstar. Joining me today is Tony Davidow. Tony is a managing director with Rydex.

Tony, thanks for joining me.

Tony Davidow: Thanks for having us.

Rawson: Following on the success of Rydex S&P 500 Equal Weight, Rydex has launched a series of ETFs based on the equal-weighting concept, both domestically and internationally. Talk about why you're launching these additional funds, and what they may offer an investor which they can't already get in RSP?

Davidow: Thanks. Actually what we do is we actually build on the success of RSP. We launched RSP in 2003. We launched sector, nine sector ETFs in 2006. Then building on that success, we launched additional strategies looking at different geographies and different capitalizations to get the exposure. What we found that was very interesting is we actually capture similar attributes across all of those strategies delivering better performance, better diversification, especially moving away from large concentration bets, and then value-added through the rebalancing that we employ, which actually allows us to sell high and buy low.

Rawson: I'm glad you mentioned those Rydex Equal Weight sector funds, sometimes they get overlooked. I think, when an investor has an idea on a certain sector, but they are not sure which stock to use to play that idea, they might look at the SPDR sector funds for example, but they might not realize they're taking a lot of concentration risk. Could you talk about how those Rydex sector funds might be an advantage in that situation?

Davidow: Thank you, because we're excited about our sector strategies, and I do think they're great tools for advisors as they think about building model portfolios. You're 100% right that by reducing the concentration risk, i.e., you could have one or two names provide a disproportionate impact on the portfolio returns, equal weighting those sectors has actually delivered very favorable risk-adjusted results over time. They are great strategies, they're great building blocks for advisors, and we want to make sure they're aware of those.

Rawson: Now the emerging markets have been a hot area; certainly in 2010, we saw a lot of monies flowing into ETFs that follow the emerging markets. Rydex is launching emerging market in international Equal Weight products. Could you tell me how they're going to differentiate from the existing products that are out there?

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