I agree most mutual funds under perform when measured against almost any index. In addition to the fees, numerous funds limit the number of annual trades or penalize you if you don’t hold for an initial period of time. Theses are the no load funds and the load funds have even more fees. Maybe this helps to explain the explosion of ETF’s (Exchanged Trade Funds). However, there are some reasons to look at certain mutual funds.

If you want to trade funds, look at trading the leveraged index or sector funds. Trade through the fund company as most brokers have a one-day clearing period (Buy Monday and out EOD Wednesday) before it can be sold and they also charge additional fees. The fund companies have no limit on the number of trades. In fact, they encourage trading. There is one company that allows twice a day trading in and out of some of their index funds.

The leveraged index funds can correspond to twice the daily performance of an index. Other funds can correspond to twice the inverse of the daily performance of an index. This way by going long you can be long or short the market.

A few words about fund fees. Generally these funds have a maximum annual fee of 2%. Since they leverage at a 2 to 1 rate this can be looked at as being 100% margined. In that case, 2% is a cheap annual borrowing rate.

This type of fund would be best suited for a swing trader. In addition, these funds can be traded in a 401k or IRA account that will allow you to short the market and use leverage.

PS: There is no stock event risk but there is still market risk and this can be considerable because of leverage.

“g” man

There are three fund families that I know of that deal in leveraged funds. They are listed below. The major players are Rydex and ProFunds. Potomac is a smaller player with a very limited number of funds.

ProFunds - http://www.profunds.com/
Rydex Investments - http://www.rydexfunds.com/
Potomac Funds - http://www.potomacfunds.com/welcome.jsp

I have traded the Rydex and Profunds funds over the last several years. I currently don’t have an account with ProFunds but plan to open one shortly. Because of the limited selections in the Potomac Funds I don’t plan on opening an account with them.

Since I have traded with Rydex recently let’s talk about what they have to offer. They have index funds, sector funds and some other specialty funds. Under the index funds there is a group specified as Dynamic funds. These are the leverage (2 to 1) funds and are the one’s/one that I trade. It’s important to me that you can take a long or short position in an index with the same leverage.

Dow Industrial – Match Long Dynamic Dow 30 - RYCVXH
Dow Industrial – Inverse Inverse Dynamic Dow 30 - RYCWX
SP500 – Match Titan 500 - RYTNX
SP500 – Inverse Tempest 500 - RYTPX
NASDAQ 100 – Match Velocity 100 - RYVYX
NASDAQ 100 – Inverse Venture 100 - RYVNX

I only trade the NASDAQ 100 because it has the higher volatility.

The Rydex Dynamic funds allow trading twice a day once in the morning (10:45 AM ET) and at end of day. Check with the fund to see what time and forum (Phone, internet, etc.) you need to use to assure the order will be timely placed.

Now, a few words about ProFunds. They have a similar line up as Rydex and listed are some comparisons.

1) All of the Rydex and Profunds trade at EOD except for the Rydex Dynamic funds listed above.
2) Rydex fees appear to be a little higher.
3) Rydex sector funds are not leveraged while ProFunds sectors are leveraged at a 1.5 to 1 ratio.
4) ProFunds have a larger selection (Russell 2000 and Mid Cap) of leveraged index funds than Rydex.
5) Theses are the major differences.

As far as ETF’s I know there are well over 700 funds. Of those there are only about a 20% worth trading because of the limited (Less than 100,000 shares average 50 day) volume.

I hope this helps.

Hey G, I agree with all IR has stated and I do not think you will be disappointed. I have been trading Rydex exclusively for 7-8 years now. I was referred to Rydex by a former pit trader and have been with them ever since. Just keep in mind the market risk since you cannot use stops with mutual funds. If I can offer any additional information do not hessitate to ask. Charley