Rydex Brings Managed Futures to Masses

Here is how "playing the futures" usually works: Most people participate through managed pools with high income and net-worth restrictions. Liquidity is limited, and clients can often make trades just once per month. High rollers who get involved in the futures market directly make leveraged bets and have to be ready to cover margin calls. Sometimes they lose more than invested.

The new Rydex fund requires just a $2,500 initial investment. Annual expenses add up to 1.65% of assets, including management and12b-1 distribution fees. After 90 days, the investor is free to redeem shares at any time without penalty (there is a 1% fee for shares owned less than 90 days). The Managed Futures Fund is taxed and regulated like any other mutual fund. You can't lose more than you put in.

At the moment, the Rydex fund doesn't hold futures contracts. It gains exposure to the market through the purchase of structured notes tied to the performance of the S&P DTI. This index follows trends in 14 futures sectors, taking both long and short positions in them. Every month, it's rebalanced to remain equally weighted between physical commodities and financial assets.

Last month's downturn notwithstanding, the index tends to move independently of other asset classes. From January 1985 to December 2006, the S&P DTI had a -0.078 correlation with the S&P 500. That means there was almost no direct relationship. A fund based on the S&P DTI and futures contracts could be used to diversify a portfolio and shield it from volatility of other markets.