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Subject:  Re: NASDAQ Index Fund??? Date:  1/18/1999  6:37 PM
Author:  EdMcDowell Number:  571 of 39514

Does anyone know if there is such a thing as a NASDAQ Index Fund?

Rydex OTC (NASDAQ 100)

I didn't mention this fund because I do not consider it to be an index fund. It calls itself an index fund, which is fine, but that does not make it true. What separates this "index" fund from index funds such as VFINX and VTSMX?

RYOCX utilizes the following strategies: options, futures, and market-timing. VFINX/VTSMX do not.

RYOCX has a turnover of (gulp!) of 972%! VFINX and VTSMX has turnovers of ~5%. As a result of these disparities in turnover (which causes capital gains distributions), VFINX/VTSMX are very tax-efficient, and RYOCX is not.

RYOCX has an expense ratio of 1.33%, while VFINX/VTSMX has expense ratios of 0.20%. One of the main reasons why index funds outperform actively managed funds is low expenses. RYOCX's expenses are comparable to actively-managed funds.

Given all these differences, I think it is clear that RYOCX is an actively-managed fund, that will likely beat the pants of the NASDAQ 100 index when it is rising, and suffer even more when the NASDAQ 100 is falling. RYOCX has high costs, high turnover, and uses derivatives (options and futures) to implement market-timing strategies. For this, I repeat my assertion that this is not an index fund. Investors who want all of the excellent characteristics associated with index funds -- low costs, excellent performance, moderate risk, tax-efficiency -- should avoid this fund like the plague.

Also, RYOCX has a minimun investment of $25K.

Happy Investing!
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