Have No Fear
This story appears in the May 2006 . Subscribe »
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.
