Guggenheim S&P 500® Equal Weight ETF (RSP) for Roth?

[Flyover]

Hi,

I am curious if anyone is investing in equal weight ETFs? The Guggenheim S&P 500 equal weight ETF (RSP) has cut the expense ratio to 0.2% from 0.4%. I am wondering if this might be a good single holding for a Roth account?   I understand it just gives more weight to the mid caps, but the fact it is relatively cheap and low maintenance has appeal. It has certainly done well since 2003.

I appreciate any opinions.

Thanks

[DMFA]

Meh, I'd just tilt more towards an extended market fund as a portion of my US equity allocation and still pay a third of that expense ratio.  I personally have FSEVX in mine.

[Hank]

Flyover wrote:

I am curious if anyone is investing in equal weight ETFs? The Guggenheim S&P 500 equal weight ETF (RSP) has cut the expense ratio to 0.2% from 0.4%. I am wondering if this might be a good single holding for a Roth account?   I understand it just gives more weight to the mid caps, but the fact it is relatively cheap and low maintenance has appeal. It has certainly done well since 2003.

 

Click to expand...

Personally I like Guggenheim's equal weight approach.  The lower fees are far more reasonable too.  In theory, not buying as much of the things that are hottest in the S&P 500 should give more of a value tilt.

We'll see how it plays out over time.

[ENT Doc]

The problem with the equal weighted funds is that they have a higher turnover (about 5x more) than something like VTSAX.  So they get you on the expense ratio and also at tax time.  I'd be curious to see their returns after accounting for those factors.

[Lithium]

I think the equal weight funds are an expensive gimmick, but what you should invest in depends on where the account fits in the bigger picture.  You say this is a Roth account.  Roth IRA?  How big is this account compared to the rest of your portfolio?

If this is a Roth IRA with its small contribution limits and you have a much larger 401k, 457b, and/or taxable account, why not go for something low maintenance with even better returns?

If you don't need the Roth space for REITs, I'd go for a small-cap or SCV index fund.  If you don't want to slice and dice to that degree, I agree with DMFA above that the extended market fund is a better choice - lower market cap/better returns, more holdings, and cheaper.

[Peds]

equal weight is definitely not the way to go. otherwise its just active management.

[PhysicianOnFIRE]

ENT Doc wrote:

So they get you on the expense ratio and also at tax time.

Click to expand...

A great reason to hold it in Roth. 0.2% isn't bad at all, either.

This is Personal Capital's strategy, and they charge an AUM fee around 0.8% and claim the strategy more than makes up for that fee based on backtesting (for what that's worth). For a low fee of 0.2%, I'd be willing to give it a shot in a tax advantaged account.

[Hatton]

I have gotten that pitch from personal capital also.  The AUM fee stopped me.

[VagabondMD]

I think that there are better ways to capture the small cap premium, if you believe in it.

[Flyover]

Thanks for all the replies.  The account is a Roth IRA which is at present about 10% of my portfolio and will become less of a percent moving forward. I am trying to put funds/ETFs that might stand a reasonable chance of outperformance in the account that will never be taxed again.  I see the logic of just buying a small cap or extended market fund to park in the Roth IRA to attempt to achieve that goal.

It does seem, however, that balancing the weights of the 500 largest US stocks (RSP) would be lower risk than small cap stocks with potentially similar returns.

Interesting to me- the lowest market cap in the S&P 500 is a little < 8 billion. The top 10 vanguard "small cap" stocks are over 9 billion in market cap.  I understand the points made about why RSP might be outperforming due to the small caps and mid caps.

PS I can see why people just buy a total stock market fund and move on!

[WallStreetPhysician]

Flyover wrote:

Hi,

I am curious if anyone is investing in equal weight ETFs? The Guggenheim S&P 500 equal weight ETF (RSP) has cut the expense ratio to 0.2% from 0.4%. I am wondering if this might be a good single holding for a Roth account?   I understand it just gives more weight to the mid caps, but the fact it is relatively cheap and low maintenance has appeal. It has certainly done well since 2003.

I appreciate any opinions.

Thanks

Click to expand...

I've looked into them, but don't think they provide any additional value beyond providing a small-cap and value tilt, which could potentially increase expected returns with higher risk.

Here is Rick Ferri's take on the topic:

https://www.forbes.com/sites/rickferri/2013/04/29/no-free-lunch-from-equal-weight-sp-500/

-WSP