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Guggenheim introduces Large Cap Optimised Diversification ETF


Guggenheim Investments has launched the Guggenheim Large Cap Optimised Diversification ETF (OPD), which tracks the Wilshire Large Cap Optimised Diversification Index. The index is designed provide optimised diversification to the US large-cap equity market.

Subject to sector and stock level constraints, the index’s methodology selects stocks that tend to have lower correlation to the cap-weighted Wilshire Large Cap Index and weights them by correlation and risk to optimize diversification. The ETF’s underlying index is rebalanced quarterly.

Individual stocks are added only to the point they contribute to diversification, resulting in an index that generally includes 100 to 120 constituents. Wilshire believes this differentiated approach, when compared to other cap-weighted and strategic beta indices, can potentially effectively deliver attractive risk-adjusted returns.

“Ever since Nobel Prize winner Harry Markowitz’s pioneering work in modern portfolio theory, diversification has been recognised as a way to improve performance potential,” says William Belden, Guggenheim Managing Director and Head of ETF Business Development. “Central to the concept of portfolio diversification is combining assets that are not highly correlated. As a result, a portfolio’s return will be equal to the weighted average return of the portfolio’s individual holdings while a portfolio’s risk, due to lower correlation among holdings, will be less than the weighted average risk of the individual holdings. Combining differentiated return streams from lowly correlated stocks may provide the potential for attractive risk-adjusted returns.”

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