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Rydex's New Twists: Alternatives, Futures

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Rockville, Md.-based Rydex Investments says it has launched a fund of funds with exposure to the alternatives marketplace. According to the company, which has some $15 billion of assets under management, the Rydex Alternative Strategies Allocation Fund seeks to deliver returns with a low correlation to those of traditional stock and bond asset classes, as well as to provide capital appreciation.

“From hedge fund replication to the industry’s first managed futures mutual fund, Rydex has been a leader in bringing alternative investments to financial professionals and their clients,” says Kevin McGovern, managing director of Rydex mutual funds. McGovern adds that the new Rydex fund can help do the “heavy lifting” for investors who are uncertain about how many and which types of alternatives to incorporate into their portfolios.

The new Rydex fund invests in a suite of alternative mutual funds and ETFs, including other Rydex funds, to provide exposure to alternative asset classes and investment strategies such as absolute returns, commodities, currency arbitrage, managed futures and real estate. The fund uses a quantitative investment methodology in an attempt to emphasize the most favorable alternative asset classes and investment strategies at any given point in time, explains the company.

“Until recently, individual investors have had difficulty gaining access to alternative investments due to high minimum requirements, lack of liquidity and other barriers,” says Edward Egilinsky, managing director of alternative investments for Rydex. “By packaging alternative exposures within mutual fund product structures, Rydex has been able to deliver the potential benefits of alternatives to individual investors in a retail-friendly format.”

Rydex also says that assets in the industry’s first mutual fund providing managed futures exposure, launched in March 2007, total $400 million, including more than $150 million since the beginning of January 2008. The Rydex Managed Futures Strategy Fund is designed to provide convenient and cost-effective access to the U.S. commodity and global financial futures markets by aiming to mirror the daily performance of the Standard & Poor’s Diversified Trends Indicator, less any fees and transaction costs.

“Due to managed futures’ historically low correlation to traditional stock and bond asset classes, it’s not surprising that we’ve seen significant interest in Rydex Managed Futures Strategy Fund as investors seek refuge from a volatile stock market,” explains Egilinsky.

Rather than investing in managed futures directly, the fund uses structured notes to provide exposure to the S&P DTI via investments in 14 sectors. Rydex says that 50 percent of the notes are allocated to financial futures and 50 percent to commodity futures. The fund rose 6.31 percent in the first two months of 2008.

“From a diversification standpoint, Rydex Managed Futures Strategy Fund offers exposure to commodities without the additional equity risk often associated with many types of commodities funds and ETFs,” says Kathy Boyle, principal at Chapin Hill Advisors of New York, who allocates a portion of her clients’ commodities portfolio to the fund. “I’m able to provide my clients with access to managed futures at a much lower fee structure than traditional commodity pools and hedge funds.”

Janet Levaux is the managing editor of Research; reach her at [email protected]