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RE: [amibroker] Russel 2000 / Mutual Fund trading problem



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Chuck / Dingo -

I've looked at this before and written some programs to model the 
tracking.  Here's what I found.

As you know, Rydex and Profunds utilize futures to implement their 
funds.  The amount that they deviate from the index could be 
attributed in a model to 3 things -

Futures carrying cost debit/credit
Management fees
Tracking error

What I tried to do was was measure this by picking a minimum of the 
standard error of various combinations of (the index + costs) to the 
appropriate fund.  This fitted "cost of doing business" could then be 
applied to the index back in time and spliced to the fund in order to 
generate a long data series for backtesting.

I haven't run this in a while, but I recall that SLPIX was running at 
approx. 3-4% annualized.

Sorry, can't offer info on trading IWM.  I have traded IWO and IWN 
(R2K growth and value), and can tell you the the bid/ask spreads are 
an issue that has to be watched there.

-- Bruce


--- In amibroker@xxxxxxxxxxxxxxx, Chuck Rademacher <chuck@xxxx> wrote:
> To partially answer my own question...
> 
> Of course, ProFunds are in the business of making money and will be 
> charging a daily fee.   So, I wouldn't expect them to always match 
the 
> performance of the underlying index.
> 
> I just discovered something else of interest.   Their Ultra funds, 
which 
> have twice the bang for your buck, have recently been outperforming 
what 
> you would expect if you were trading double the index.
> 
> So, this could be a good application for the AB Portfolio Ranker... 
put me 
> into the one that is currently outperforming; either 100% of the 
RUT or 
> 200% of the RUT, depending on which one is doing the best.   I'll 
try that 
> concept right now.
> 
> 
> 
> At 03:03 PM 1/18/2004 -0500, you wrote:
> >In exchange for your formula I'll tell you why...
> >
> >Seriously,  Its because they don't trade the basket of stocks that 
> >comprises the RUT. They trade using all kinds of instruments. From 
their site:
> >
> >"Russell 2000 Index
> >The Russell 2000 Index measures the performance of the 2,000 
smallest 
> >companies in the Russell 3000 Index, representing approximately 8% 
of the 
> >total market capitalization of the Russell 3000 Index, which in 
turn 
> >represents approximately 98% of the investable U.S. Equity market. 
It is 
> >not possible to invest directly in an index. ."
> >
> >Seems to me that you're seeing their inefficiency/error in 
trading.  I 
> >think they cover this in their prospectus.
> >
> >d
> >
> >----------
> >From: Chuck Rademacher [mailto:chuck@x...]
> >Sent: Sunday, January 18, 2004 2:43 PM
> >To: amibroker@xxxxxxxxxxxxxxx
> >Subject: [amibroker] Russel 2000 / Mutual Fund trading problem
> >
> >Let's say that I have one of those systems that seems to good to be
> >true.   Relax, I didn't get it from Joe.
> >
> >It makes 100% per year with a 6% DD.   As I said, too good to be 
true.
> >
> >Of course, it makes some assumptions.   I designed it to trade the 
ProFunds
> >Small Cap Funds (long and short).   The tickers are SLPIX and 
SHPIX.   I'm
> >assuming that I will get my buy/short signals just prior to the 
market
> >close and that I will enter on the close and that my slippage is 
going to
> >be zero.   I might add that this is NOT my normal mode of trading.
> >
> >Since these funds are supposed to "closely follow" the RUT and 
since data
> >for these funds doesn't go back very far, I used the RUT for my 
design and
> >backtesting.    This is where I got the results that were so good 
that I
> >was ready to tell my wife that she won't have to be waiting tables 
and the
> >local pub.
> >
> >For the final test, I decided to try it on the ProFunds tickers 
that I
> >mentioned above.   Of course, data for these only goes back to
> >2002.   Well.... since 2002 the system didn't do as well trading 
these
> >funds as it did trading the RUT.   The difference was large, but 
the
> >results were acceptable.   My wife could switch from full-time to 
part-time
> >work.
> >
> >My question was/is "why the disparity between RUT and the 
corresponding
> >ProFunds?".    I decided to go to the ProFunds site and see if 
they have a
> >comparison of performance between their funds and the RUT.   There 
it was,
> >big as could be, the performance of their funds HAS NOT done as 
well as the
> >RUT over the last year or so.
> >
> >So, the big question.   Does anyone know why this is the case?    
I will,
> >of course, ask ProFunds to comment.   But I thought that some of 
you mutual
> >fund traders (Fred?) might have a more realistic answer.   How can 
they say
> >that these funds track an index when the performance is as much as 
10%
> >different over some quarters?
> >
> >Please hurry... I'm calling my wife in New Zealand later today and 
I want
> >to make sure I have my facts right before I tell her that she can 
retire.
> >
> >Thanks!
> >
> >
> >
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