Data & Research August 8, 2011

Affluent Investors Motivated to Save for “Freedom”

A recent study from Hearts & Wallets found that affluent investors, ages 40–60, are saving for financial freedom rather than a traditional retirement. 
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The study, “Acquiring Mid-Career Accumulators: Positioning Advice and Disclosing Fees with Upshifting and Downshifting Investors,” found that many investors are not planning to retire, but rather are preparing a back-up plan if they want to leave their job “if someone treats them unreasonably, or if they simply get sick of that job and want to do something else,” said Laura Varas, Hearts & Wallets principal. However, the study also reports that few providers have been able to change the dialogue from a singular focus on retirement to multi-dimensional freedom money.  

“It’s critical to address these issues prior to the 401(k) fee disclosure in 2012,” said Chris Brown, Hearts & Wallet principal. “Investors want to understand what they are getting and paying for, and this will improve trust overall.” 

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Brown continued, “It may take some time, but seeing what they’re paying in their employer-sponsored retirement accounts will give investors the framework to start asking questions about price and value in their own retail relationships, questions that are already very much on their minds.”

The study involved a series of nationwide focus groups with investors with a minimum of $100,000 in assets who were actively thinking about advice service model pricing, broken down into ‘Upshifters,’ ‘Downshifters,’ and those ‘Engaged & Staying Put.’ 

The research addressed questions concerning investor attitudes on retirement and advice, as well as the continued industry trend of muddled value propositions around advice service models and pricing.  

“The major finding with the concept testing was that if your offering is positioned as a service, be a service. Service companies can describe the services they offer on key dimensions, teach the customer how to evaluate how well those services are delivered, and offer choices in pricing to go up or down depending on the customer’s chosen service level,” said Varas. “This principle of ‘being a service’ applies to product manufacturers,… as well as the more obvious case of brokerage firms, banks and others who offer investment services directly to investors.”

Products August 8, 2011

Rydex Launches Two S&P Equal Weight ETFs

Rydex announced the launch of two equal weight exchange-traded funds (ETFs). 
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The addition of the two equal weight (EW) ETFs – the Rydex S&P SmallCap 600 Equal Weight ETF and the Rydex S&P MidCap 400 Equal Weight ETF – brings Rydex’s total number of EW ETFs to 18 and total number of exchange traded products to 36, with assets over $9 billion.

Rydex says its Rydex S&P Midcap 400 Equal Weight ETF (ticker: EWMD) and Rydex S&P SmallCap 600 Equal Weight ETF (ticker: EWSM) offer “broad exposure” to the companies in the S&P MidCap 400 Equal Weight Index (EWI) and the S&P SmallCap 600 (EWI), respectively. Both EW ETFs invest in the same stocks as their cap weight versions, have equal exposure to each stock and are rebalanced quarterly, according to Rydex.

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“Rydex has been a pioneer in the ETF space since the 2003 launch of our flagship ETF Rydex S&P 500 Equal Weight ETF (RSP),” said Jim King, ETF portfolio manager at Rydex|SGI. “The new ETFs provide investors access to two additional ways to employ an equal weight approach in portfolio construction, allowing them to increase performance potential and diversify holdings,” he said.

Equal weight indices are typically comprised of the same constituents as their cap-weighted equivalents but each component is equally weighted — which Rydex says provides the following potential benefits:

  • Performance Potential. An equal weight approach reduces the bias towards the largest companies within a particular cap-weighted strategy. The smaller companies may help an equal weight strategy outperform when large caps are not in favor, though when large stocks are in favor, equal weight strategies may underperform, according to Rydex.
  • Diversification. While diversification does not assure a profit nor eliminate the risk of experiencing investment losses, Rydex notes that it may help reduce concentration risk and provide more balanced exposure across market capitalizations, sectors and other broad risk factors.
  • Disciplined rebalancing. As portfolios are regularly rebalanced back to equal-weight, they take profits on outperforming components of the index-such as specific companies or sectors. This rebalancing may help balance risk factors and provide enhanced risk control.

Rydex manages approximately $26 billion in assets — including more than $9.5 billion in exchange traded product assets, according to the announcement. 

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