Institutional Investing Goes Mainstream

Mainstream investors who want access to institutional investing strategies like those used by large university endowments and pension funds now have a way of getting it.

Rydex Investments recently launched Essential Portfolios, three products that invest in a combination of the company's mutual funds to get exposure to everything from stocks and bonds to alternative assets --such as commodities and currencies -- and hedge fund-like strategies.

These funds-of-funds -- or mutual funds that invest in other mutual funds -- focus largely on risk and are designed to provide retail investors with a higher level of portfolio diversification. The idea is to decrease vulnerability in bear and sideways markets, though that also means returns will be more muted in an up market.

"If the market booms, they won't do as well from a relative standpoint, but in a sideways or downward market, these products are likely to outperform," says Phil Fragasso, a senior vice president of marketing at Rydex.

By using alternative assets and strategies to construct the portfolios, Rydex is taking a cue from university endowments -- think Harvard and Yale, for instance -- which have enjoyed superior performance over the past decade, due largely to their creative use of a wide variety of asset classes and investment methods.

For fiscal 2006, Harvard, the nation's wealthiest university, saw its endowment grow 16.7%, to nearly $30 billion. Meanwhile, Yale's endowment, which is second in line after Harvard's, actually performed better, rising 30% to $18 billion, slightly topping its growth the previous year.