Institutional Investing Goes Mainstream

In the moderate fund, the holdings shift a bit; for instance, the allocation to Absolute Return Strategies increases, the Commodities fund decreases as a percentage of the portfolio, and two funds are added, (RYOCX)OTC and (RYNVX)Nova. Hedged Equity drops from the portfolio, as do the Russell 2000 Advantage and a couple of other funds.

By the time you hit the conservative fund, the Multi-Cap Core Equity, Absolute Return Strategies and Government Long Bond Advantage funds dominate, along with the Money Market fund, which comes in with a 20% allocation. The remaining 20% of the conservative group is divided between the Europe Advantage, Commodities, Sector Rotation, Hedged Equities -- which returns to the portfolio -- and (RYAZX)Small-Cap Value funds, the latter of which is introduced for the first time.

These pie charts illustrate the different allocations in each fund, as of June 30.

Dual Demographic

The Rydex funds are meant to target both do-it-yourself investors and financial advisors.

According to Fragasso, they provide individual investors with a well-diversified portfolio, but also give advisors the opportunity to offer something to their clients beyond capital accumulation or preservation. In addition, Rydex is aiming to get the products onto major 401(k) platforms, says Fragasso.

So how much does this level of diversification and risk adjustment cost? Perhaps not as much as you think.

Most funds-of-funds charge an overlay fee -- basically an added expense for the special structure -- in addition to the fees levied by each underlying fund. Rydex does not charge an overlay fee for these funds, so the expenses amount to the weighted average expense of all the included funds, or about 1.4% for the no-load H-Class shares and 0.75% for some of the loaded funds, Fragasso says.

"We think this is a reasonably inexpensive way to get institutional-like exposure," says Fragasso, who adds that the strategies and asset classes used in the portfolios would typically be available though products like hedge funds, which usually charge 2% and take 20% of the profits.

It's too early to tell how the funds are faring, but Fragasso says that "feedback has been overwhelmingly positive."

He declined to provide data on the asset flows into the funds, but says, "We are happy where we are in assets for a brand-new product ... we are on pace for sales goals for the year and momentum is picking up."

>To order reprints of this article, click here: Reprints