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Author: Nizac One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 39314  
Subject: Re: NASDAQ Index Fund??? Date: 1/18/1999 10:17 PM
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I didn't mention this fund because I do not consider it to be an index fund.

I am, for the most part, in agreement with you on this point. But since it is the closest thing to one that I am aware of, I thought I would mention it.

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

According to the prospectus for RYOCX it "invests principally in securities of companies included in the NASDAQ 100 Index". Where did you read that it employs "market-timing" as an investment strategy? But you are right to point out that it may invest in other than just the index securities. http://www.rydexfunds.com/individual/fund_info/index.html

However, I wouldn't totally agree that the use of options and futures immediately disqualifies a fund as an "index" fund. For example, the new Waterhouse DOW 30 index fund (WDOWX) prospectus mentions that it may invest in "Equity Equivalents", which among other things it defines as including "stock index futures contracts". But I consider this an index fund. http://www.waterhouse.com/djif/

Also, the Vanguard Total Stock Market index fund (VTSMX) doesn't (obviously) invest in all the stocks in the target index. Instead, according to the prospectus "Using a sophisticated computer program, each Portfolio selects stocks that will recreate its target index in terms of industry, size, and other characteristics". http://www.vanguard.com/catalog/lit/download_prosp.html

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.

Ouch! Yes, in total agreement with you on this point. Although this is at least in part attributable to the increased volatility of the respective benchmark index. See for example, http://www.nasdaq.com/reference/sn_ndq100_annual.stm

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

Whether or not RYOCX is actively managed, I don't agree that this implies it will beat the index while the latter is rising and lose to it while falling. In fact, if you go to http://www.bigcharts.com/ and chart RYOCX against IXO for the last 5 years you'll find they have tracked remarkably well. Not as good as VFINX and the S&P 500 perhaps, but still well.

RYOCX has an expense ratio of 1.33%, while VFINX/VTSMX has expense ratios of 0.20%.

I am in total agreement that the expense ratio is high, and that this is an important point.

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

Yes, and there are no exceptions for IRA investors, unlike many other index funds. But if you have the money to invest, then I don't think high minimum investments should deter anyone.

One final point. If the original poster was looking for an index fund that tracks the Nasdaq Composite, rather than the Nasdaq 100, then none of this will have been very helpful :)
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