OTC Hybrid Rakes It In
Here at home, passive index funds outdid the active
managers again. But an unusual hybrid of the two investing
styles leads the pack for the week and the year, so far. The
new $38 million UltraOTC ProFund attempts to double the
daily returns of the Nasdaq 100 by trading index futures
contracts and options. The turbo-charged indexing strategy
moved the fund up 8.9% so far this week. UltraOTC has
tacked on a whopping 47.4% so far this year.
The standout performance has turned the eleven-week-old
fund into a money magnet, according to Maryland-based
Profunds chairman, Michael Sapir. "We are getting
anywhere from a half-a-million to five million in a single day,"
he joyfully acknowledged.
Good thing the firm's not shy about admitting that the fund is
designed to double daily returns both positive and negative,
or those new investors would be in for a rude surprise next
time tech does a two-step-back. For an earlier story on
ProFund's strategy, click here.
Fund Watch Features: Roundup: OTC
Tracker and Tech Lead Week; Gabelli's
Value Style Slips
By Avi Stieglitz
Staff Reporter
2/6/98 5:53 PM ET
With its outsized returns this week, tech continued to be the
Joseph of the fund world, evoking jealousy from its domestic
equity brethren.
The most envied of the tech clan was UltraOTC ProFund,
which rose 9.2% this week and is now up a whopping 26.2%
for the year. The fund, while not classified as tech, is
practically one. It seeks to double precisely the return, or
vice versa, of the tech-bloated Nasdaq 100. Its year-to-date
return is more than double the 12.9% gain of its closest
general equity rival, Rydex OTC, which merely seeks to
match the returns of the Nasdaq 100.
The fund is one of six started in November by ProFunds, a
Rockville, Md.-based fund family started by a Rydex
ex-employee. (As originally published, this story incorrectly
said "ex-employees.") Rydex is the originator of using
options and futures to create bull and bear funds. The firm
has amassed $1.8 billion in assets of market-timing
investors who shift money between the Rydex funds
depending on their point of view.
What motivated the Pro folks? "We though we could build a
better mousetrap," says Michael Sapir, a former senior
vice president at Rydex and a ProFunds founder.
ProFunds is in fact the second Rydex offspring in the last
several months. Potomac Funds, also started by
ex-Rydexers, opened market-timing funds using a similar
strategy late last year.
The new fund families are trying to differentiate themselves
from Rydex by imitating the Nasdaq 100 and S&P 500
indices more aggressively.
ProFunds, which has already amassed more than $20
million in assets in UltraOTC, and the five other funds they
run -- UltraBull, Bull, Bear, UltraBear and a money
market fund -- use leverage to produce either huge gains or
losses. The Bull and Bear funds use the S&P 500 as a
benchmark to either go long or short the market while the
Ultra funds seek to double the return of the index in either
direction.
So how does Rydex feel? "At first, I was not happy," says
Skip Viragh, the founder and president of Rydex. But "we're
so far ahead of them that I feel okay"
Still, Rydex isn't resting on its laurels. The fund family plans
to launch 14 sector funds in early spring, covering broad
areas like technology, health care and financial as well as
subsectors like electronics, biotechnology and banking. The
funds will be baskets of the 50 to 75 largest stocks based
on market capitalization in their sector. Stocks that do not
move in correlation with the rest of the sector will be filtered
out.
Meanwhile, ProFunds plans to offer new variations on ways
to time the market. There is a Bear OTC fund on the
"drawing board," which would return the inverse of the
Nasdaq 100, says Sapir.
Meanwhile, among the rank-and-file actively managed tech
funds, the new Dreyfus Technology Growth continues to
hold the top spot this year with a gain of 13.7%, according
to Lipper Analytical Services. For a recent article on how
Technology Growth and the other new funds in the sector
have outperformed their more mature peers lately, click here.
IPO Fever
Investors seduced by the breathtaking returns of hot IPOs
now have a fund that focuses on the high-risk, high-return
area.
IPO Plus Aftermarket fund warns that it may not always be
able to get hot IPOs at the offering price, but fund manager
Kathleen Shelton Smith believes there are significant
opportunities in the IPO aftermarket, where there is
"unseasoned trading and a lack of research."
The fund, which is run by IPO research firm Renaissance
Capital, has gotten off to a good start. As an incubator fund
run with only $100,000 in seed money, it was up 13% from
mid-December through its official public opening on
Tuesday. Since then, IPO Plus Aftermarket has been flat.
Among the six positions in the portfolio are Verisign
(VRSN:Nasdaq), an Internet company, and cookie company,
Keebler (KBL:NYSE).
Smith says that interest in the fund has been very strong
and expects total net assets to top $10 million "within a
couple weeks."
|
