Published:
July 27, 2007
Rising Rates Opportunity ProFund (RRPIX, $20.65) --
When most bond funds are losing ground, RRPIX actually makes
money. This inverse bond fund tracks the 30-year U.S. Treasury
yield, which moves inversely to the price. When the price of the
30-year Treasury falls, the Treasury yield rises -- and so does
the value of this fund.
And besides capital gains, RRPIX also offers an above-average
dividend yield. At year-end 2006, the fund paid out $1.37 in
interest income, which equates to a yield of 6.6% at today's
price. However, a fairly steep expense ratio of 1.43% will trim
your total returns.
If long-term interest rates continue rising, then so will the
value of your investment in this fund. With the use of leverage,
the fund is designed to advance +1.25% on a day when the 30-year
Treasury declines in price by -1.00%.
But the reverse is also true. The fund could decline -1.25% when
the 30-year Treasury goes up +1.00%. In fact, since its
inception in mid-2002, rates have trended lower and the fund has
returned a disappointing -5% a year.
Given that the dividend is taxable as ordinary income, the fund
is suitable for a tax-sheltered portfolio -- and a fairly
substantial portfolio at that. A minimum investment of $15,000
is required for an individual investor.
Action To Take ---> Considering how
unpredictable interest rate swings can be, we wouldn't recommend
an investor take a large position in this fund. Still, the fund
could serve as a useful hedge to protect the value of your bonds
and other fixed income investments against a continued rise in
interest rates.

Carla Pasternak
Editor
High-Yield
Investing
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