Cost of carry (the quote is several years old, but
makes the costs clear to me now)
The short-seller of an interest-bearing security must reach into his pocket to pay the interest on the security he has sold. Anne Ruff, portfolio manager of Rydex Juno, is currently shorting a 53/8% coupon. Partially offsetting this cost is the interest earned on the cash generated by the short sale and by the money deposited in the fund by the investors: The interest on these balances amounts to 2.4%. Subtracting 2.4% from 53/8%, we get almost 3%, a residual known in the trade as "negative cost of carry." On top of which is a 1.4% management fee. For the privilege of betting against Alan Greenspan, you are therefore paying 4.4%. (Of course, if short rates were higher than long rates, the "cost" of carry would be positive.)
forbes.com
So, not until short rates start dragging up long
rates does it look like RYJUX would start making
money. That might be awhile longer, short rates
are very low, unusually low. Maybe if the fed
eases too much and things reverse--genuine inflation
rather than the risk of eventual stagflation.
The RYJUX expense ratio
*** This ratio represents Gross Expenses, which include
interest expense from securities sold short.
Excluding short interest expense, the operating expense
ratio would be reduced by 3.61% |
