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Rydex has developed an ETF that gives equal weighting to all 500 companies. The theory is that this would be more representative of "the market" since it holds all companies in equal amounts.

Interesting, though personally I prefer cap weighted products. The magic of cap weighted investments is you can be certain 99% of the individual shares making up the fund are going to be the same this year as last. So transaction costs (commission, bid/ask, market impact) and cap gains pass-through will be low.

Also, how easy will it be to spot tracking error with this ETF? With the cap weighted products I can just compare to the S&P.

And I'm not sure such a product is more representative of the market than a cap weighted index. Take GE. It's really dozens of separate "businesses" conglomerated under one name. You'd get better economic exposure with more of this than say, Eastman Chemical. It's kind of like if you diversified your portfolio among countries. Would you want the same proportion of US stocks as those of say, Botswana?

I'm going to hazard a guess that this ETF will under perform the cap weighted ones long term.

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