This RPG won't blow up on you!

by Wayne Ferbert on November 4th, 2013

ETFs are one of our favorite investment products that we like to use in our investment portfolio. So, we regularly are on the lookout for investment products in that category that we could use in our portfolio. In doing some index research this weekend, I think I found an interesting candidate.
The Guggenheim S&P 500 Pure Growth ETF (symbol: RPG) is a product that was introduced in 2006 and has had excellent performance for the last 5+ years. Morningstar currently gives it a 5-star rating which is not that common in the ETF world.

You can find out more about it on the Guggenheim web site by clicking here.

Let’s take a closer look.
The ETF is based on the S&P500 index called the Pure Growth index. The constituents for investment in this index are solely the S&P500 companies. Currently, there are 112 stocks in the index in some weighted capacity. To get put in the index, the stocks must qualify based on: sales growth, the ratio of earnings change to price, and momentum. These factors determine entry in to the index and then the corresponding weight that the stock gets in the index.  
The RPG has out-performed the S&P500 year to date with returns of about +35% compared to around +23% on the S&P500. The RPG performed right in line with the S&P 500 in 2012 and 2011. But in 2010, it out-performed again with around +25% compared to the S&P500 returns of around +12%. In 2009 it out-performed again by over 20%. And in 2008, it performed in line with the S&P500 overall.
Being a value guy, I was surprised by this data. Every year since 2008, this ETF has had two types of performance: it either performed in line with the S&P500 OR it absolutely blew the S&P500 out of the water!
In fact, even when you look at peak to trough in the S&P500 from October 2007 to March 2009, the RPG slightly out-performed the S&P500 by a couple percentage points. I am really impressed with the resiliency of the growth stocks in the S&P500.
There is a pure value index also – which has done great in 2013 beating the RPG by around 3% in return. And it did great in 2012 also compared to the RPG and S&P500. But it does not hold up in down markets the way the RPG has held up. It under-performs a little more often. And it really fell almost 80% peak to trough in 2007 to 2009. You would expect value plays to find buyers in distressed markets. The problem was that many of the value plays were the distressed companies back in 2008 and 2009 -- financials and real estate.
In other words, the pure value strategy puts a lot of weight on book value and Financials always trade at lower price to book value than most of the rest of the S&P 500. The concentration in financials explains the great performance in 2012 and 2013 of the RPV – and the reason for the significant declines in 2008 and 2009.
In the end, on a risk adjusted basis, the RPG has been stellar – and really seems to have earned its 5-star ranking from Morningstar.
And it has a correlation to the S&P500 of over 84% - so you can use the SPY or SPX options to hedge this position. Consider this strategy for a little bit of your growth portfolio.

Posted in not categorized    Tagged with no tags


Leave a Comment