You’re probably tired of seeing these updates but the RYDEX model has performed well in the midst of the recent market melt down and I wanted to suggest a few reasons why. First and foremost is the actual makeup of the funds, which is considerably different than ETF proxies. Being a blended fund allows for an inherent hedged portfolio that avoids the follow the herd behavior of similar sector ETFs. ETFs attempt to accomplish a relative strength bias simply by including larger portions of certain stocks (like Apple) in their makeup. This works well until the whole market turns, then the overweighting works against the ETF as any contrary moves in the under-weighted ETF components have little effect on the ETF NAV. RYDEX funds also have various degrees of built in leverage that allows them to move disproportionate to their ETF counterparts.This leverage would typically translate into increased volatility and hence risk exposure but by balancing these funds against one another in a market neutral environment like Mosaic we are able to capture the net leverage skew, a strategy that has worked out nicely so far. Note that the Risk Spread Indicator is bouncing up off the zero line mentioned in previous posts signalling a low risk time to increase capital exposure….for this model only.
You can learn more about the unique features of these funds here. Note: This is not a solicitation to buy or sell any Rydex funds. I have no financial interest in the funds and only provide this link as an informational item.
