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Several people have asked about the Rydex Funds I mentioned in a previous post:
>Re: Your comments on trading the Rydex funds, where could I get details? I
>see that their Symbol is RXIM, but I can't find any listing on the U.S.
>exchanges. What I'm interested in is if and how the Rydex could be traded
>on a short term basis by an individual.
and:
>Bob, could you give me a quick background on the Rydex funds? I've seen
>several references to them, but I don't trade funds so I've never gotten
>any info on them.
The Rydex funds were the first of what I call "designer funds" (like
"designer drugs").
They were designed for professional money managers, often called "market
timers", who want to be long the market when it is going up and short when
it going down but on a day-to-day basis. But they cannot trade futures
because they are managing accounts (such as IRAs or pension funds) where
futures trading may not be allowed.
Rydex has several funds. One, the Nova Fund, attempts to match the S&P 500
cash index but with a beta of 150%. That means that when the S&P goes up
2%, the fund should go up 3%. Same for down moves. It is like a super index
fund.
There is also the Ursa Fund, that is the mirror image of the S&P with a
beta of -100%. That means that when the S&P goes up 2%, the fund should go
DOWN 2%. So you would move your money into that fund if you thought the
market was heading down.
You can switch as often as once a day by making a phone call by about
3:45pm. No charge to switch (as I recall).
The funds accomplish this magic by purchasing various combinations of
options and futures.
You can get similar results by trading SPRDs (S&P depository receipts,
symbol = SPY) on margin but with commissions on the trades.
Rydex now has several such funds matching the OTC index, Precious Metals
Fund, etc. They also recently introduced a group of sector funds, similar
in concept to the Fidelity Sector Funds but allow you to switch frequently.
There are now other companies doing the same thing with different
variations. These include ProFunds and Potomac Funds.
The Rydex Funds can be used by individuals with a minimum account sizes of
$25,000. ProFunds minimum is $15,000. Potomac Funds minimum is $10,000.
Rydex 800 820-0888
ProFunds 888 776-3637
Potomac Funds 800-851-0511
As people figure out how to use computers for market timing these should
become more popular. Some people just use the high beta funds as buy/hold
investments since if the market keeps going up, they should go up 1.5 to
2.0 times faster. But remember, leverage works both ways...
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