This story appears in the
May 2006 issue of
Entrepreneur.
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If the word leverage doesn't create a deer-in-headlights gaze when you hear it, then you may like ProFunds.
Last year, the ProFunds Biotechnology Ultra Sector Technology fund (BIPIX) had a 27.3 percent return-almost three times the return of the average health/bio-tech fund Lipper tracks. For the past three years, it has ranked No. 2 in its category.
What does this fund have that others don't? It's a leveraged indexed sector fund with a beta of 1.5, which means it's designed to track the Dow Jones U.S. Biotechnology Index and outperform or underperform that index by 1.5 percent on a daily basis. So if the fund's net asset value, or NAV, was $100 and the index went up 1 percent today, the fund's NAV would be $101.50 tomorrow; if the index fell by 1 percent, the fund's NAV would be $98.50.
"There's no magic to it," says Bill Seale, ProFunds' chief economist. "[Indexing] certainly isn't equivalent to stock picking. The fund does well because the index has."
Seale says this fund--and the other ProFunds--are designed for more sophisticated investors and those who are active traders. Opening an account directly with this no-load family requires $15,000, but monies can be divvied up among two or more funds. ProFunds can also be purchased through various brokerage houses with lesser minimum requirements.
Dian Vujovich is an author, syndicated columnist and publisher of fund investing site www.fundfreebies.com.