With its purchase of Rydex SGI in February, a little-known asset manager by the name of Guggenheim Partners suddenly became the seventh-largest ETF provider in the U.S. Prior to its purchase of Claymore Securities just seven months earlier, Guggenheim had only been involved in one product for retail investors. The truly shocking part is the whole thing might have been an accident.
On Feb. 16, Guggenheim bought Security Benefit Corp., a struggling financial services firm out of Topeka, Kan., for an undisclosed sum. In the package, Guggenheim received four businesses: Security Financial Resources, a national provider of retirement plan services for more than 135,000 accounts, primarily in the education market; Security Benefit Life, a provider of fixed and variable annuities to 200,000 policyholders; se2, the administrator of more than 700,000 policies and $30 billion in assets for the insurance and financial services industry; and SGI Security Global Investors and Rydex SGI, an asset manager and ETF provider.
Right after the deal went down, Todd Boehly, Guggenheim’s managing partner in the office of the chief executive, told Investment News that purchasing Rydex SGI for its ETFs “wasn’t the primary consideration behind the acquisition of its parent company” but that it “presented to us an attractive opportunity.”
Yet, suddenly they’re a major player and the owner of two of the most innovative houses in the ETF industry.
Rydex SGI entered the ETF market in 2003 by launching the first ETF to use an alternative weighting methodology, the Rydex S&P Equal Weight ETF (NYSE Arca: RSP). Known for creating the inverse mutual funds, Rydex is also one of only three firms that offer leveraged and inverse ETFs. In addition, it created the first family of exchange-traded products to track individual currencies: The CurrencyShares currently give investors access to nine major currencies without the hassle of entering the actual foreign exchange market.
Meanwhile, Claymore has made a reputation for being the first in many high-concept thematic and tactical portfolios, such as the water industry with the Claymore S&P Global Water Index Fund (NYSE Arca: CGW); the popular emerging markets bloc known as BRIC (Brazil, Russia, India and China) with the Claymore/BNY Mellon BRIC ETF (NYSE Arca: EEB); and the solar power industry with the Claymore/MAC Global Solar Energy Index ETF (NYSE Arca: TAN).
At the end of February, Rydex SGI had about $22 billion in assets under management. Its 31 ETFs held $5.8 billion, making it the ninth-largest ETF sponsor in terms of assets, according to the National Stock Exchange. Together with the $2.74 billion in the 32 ETFs held by 13th-place Claymore, the combined ETF assets jump to $8.54 billion, leaping over BNY Mellon and WisdomTree to be the seventh-largest ETF firm behind iShares, State Street, Vanguard, Invesco PowerShares, ProShares and Van Eck. Claymore held $15.2 billion across all its product lines, which include closed-end funds and unit investment trusts, at the end of 2009.
What’s The Plan?
Considering Guggenheim now owns two of the most unique ETF houses, ETFR wondered about the firm’s strategy. How do ETFs fit into its overall business plan? Would the firm keep the Rydex and Claymore brands separate or merge them? And are there plans to buy more ETF providers? Guggenheim Partners declined requests for comment. Considering the fortuitous nature of the Rydex purchase, it may be that its strategy is still under development. But some in the ETF industry see interesting potential in the new firm.
“I think it’s an interesting combination buying both Rydex and Claymore. They both have different offerings in the ETF lineup,” said Reginald Browne, managing director of listed derivatives group at Knight Equity Markets. “Once Guggenheim determines its core strategy in the ETF space, combining the two entities I believe will be an interesting competitive advantage given their diverse lineup, and a compelling offering among ETF sponsors.”
In previous reports, Boehly said there are no plans to integrate Claymore and Rydex SGI, but “longer term, we’ll be looking at a lot of things related to how to optimize business” and that Rydex plans to launch “a lineup of new innovative products” within the next six to nine months.
“As promising as it looks, this is basically a low-margin business for a high-margin house,” said Ron DeLegge, editor and publisher of ETFguide.com, a San Diego-based Web site focused on ETFs. “I wouldn’t be surprised if they consolidated funds, getting rid of the ones with few assets and trying to gather assets and trading volume from a few strong funds.”
Well, a first look at the new line came with the recent launch by Claymore of a suite of ETFs designed to track broad market indexes, the Wilshire 5000 Total Market ETF (NYSE Arca: WFVK), the Wilshire 4500 Completion ETF (NYSE Arca: WXSP) and the Wilshire U.S. REIT ETF (NYSE Arca: WREI).