Rydex and ProFunds Traders

formikatrading · Oct 31, 2003

For those of you who trade these funds, please note that the Investment Company Institute which represents 385 mutual fund families is asking the SEC, among other things, to set a redemption fee of at least 2% on sales of mutual funds within 5 days of purchase. This fee would apply to ALL FUNDS except money market funds.

Accordingly, those of us who trade Rydex and ProFunds index and sector funds on a short-term basis would be also affected if this proposal is enacted.

If you believe as I do that this is an unfair restriction, please let the SEC hear your opinion.

Contact The SEC's Division of Investment Management

e-mail: IMOCC@sec.gov.

www.sec.gov

IndexTrader · Oct 31, 2003

What strategy do you have that you could not perform as efficiently with an ETF?

Free Thinker · Oct 31, 2003

Quote from IndexTrader:

What strategy do you have that you could not perform as efficiently with an ETF?

shorting in an ira for one.

Ebo · Oct 31, 2003

RYDEX seeks to perform 200% of the underlying index.
So If you trade SPY you would need to turbo charge your performance with either options and/or futures as well.

I prefer the liquidity of trading ES and SPY myself and have no reason to trade a fund.

Good point Vhehn!

formikatrading · Oct 31, 2003

As someone already mentioned, IRA's are an issue because you can't trade on margin or short ETF's.

Also, if you want to use a group trading feature to trade multiple accounts, it's easier and more cost efficient with Rydex / ProFunds (no commissions). Granted, your trading times are limited, but it can be easier for people who don't have time to watch the market all day and need to trade multiple accounts with the same strategy.

gnome · Oct 31, 2003

Quote from formikatrading:

For those of you who trade these funds, please note that the Investment Company Institute which represents 385 mutual fund families is asking the SEC, among other things, to set a redemption fee of at least 2% on sales of mutual funds within 5 days of purchase. This fee would apply to ALL FUNDS except money market funds.

Accordingly, those of us who trade Rydex and ProFunds index and sector funds on a short-term basis would be also affected if this proposal is enacted.

If you believe as I do that this is an unfair restriction, please let the SEC hear your opinion.

Contact The SEC's Division of Investment Management

e-mail: IMOCC@sec.gov.

www.sec.gov

As I heard the scuttlebutt, the proposal would apply to all funds EXCEPT "those funds specifically designed to accommodate short term trading..." That be Rydex, ProFunds.

formikatrading · Oct 31, 2003

I have not seen that "exception" but hope that is correct.

gnome · Oct 31, 2003

Quote from formikatrading:

I have not seen that "exception" but hope that is correct.

I doubt that such a proposal would pass anyway. Each fund family could impose sufficient penalties to stop trading entirely within their fund. (I know about that... I've been kicked out of about as many fund familes as anybody.) Of course, all the traders would all leave and go to Rydex/Profunds, trade ETFs or futures....

The Institute is probably trying to not only prevent trading, but keep the traders from having an alternative... thereby retaining assets within the mutual fund industry.... just another layer of Gummint crap-ola.

formikatrading · Nov 1, 2003

such a proposal would have difficulty passing but all of the mutual fund industry seems behind it. And they can argue that it is good for the markets because it fosters stabilization. Like you said, this just a bunch of crap -- I do think if it passes AND there is an exception for Rydex and ProFunds that Rydex and ProFunds will flourish and the managed mutual fund industry will regret having proposed it.

gnome · Nov 1, 2003

Pardon me if you already know this....

The "Trader Funds" like Rydex were not possible until the "short-short" rule was repealed. It basically said, "... If more than 30% of the fund's gains came from trades held less than 90 days, the fund may lose its pass-through status and be taxed as a corporation..." (Another STUPID law to promote "stabilization" of the markets.) If I remember correctly, the guys who started ProFunds and Rydex both used to work at Rushmore. They left and formed their own funds because they saw the opportunity opened by the repeal of short-short.

Rydex put like $100K of company money into each fund on a permanent basis. That is, if EVERYBODY [timer] wants to leave a fund, Rydex will still have its stake and the fund will have a NAV. Regular funds, of course, don't work this way.

I doubt a law could be passed that would prohibit the trader funds from operating as they please just because the other guys whined about Rydex. And even if they did pass such a law, the traders would just have to split some of their money into futures accounts to use them as a hedge as necessary during the minimum hold period. That would be inconvenient, but overall investment results would probably show little impact. In fact, it could easily lead to better performance.