Nasdaq 4000: High-Octane Funds Aim to Outdo Index's Astronomical Returns

The funds focus on the Nasdaq 100, and some employ high-risk strategies to beat its returns.
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Editor's Note: This is an updated version of a story that ran Nov. 3 as part of our Nasdaq 3000 coverage.

If today's milestone prompts you to consider investing in a

Nasdaq

-based index fund, here's some good news: It won't take you very long to research the field.

There are only a few funds and fundlike investments out there, all of them focused on the top 100 of the 5,000-plus stocks that trade on the Nasdaq.

Arguably, the most popular vehicle is the

Nasdaq 100

tracking stock. Investors have poured more than $6 billion into shares of this portfolio.

This tracking stock, known by its ticker symbol QQQ, trades on the

American Stock Exchange

and can be bought and sold throughout the course of each trading day. You can buy shares through a broker, just like any other stock.

These securities will give you ownership in a unit investment trust, or UIT, which holds shares of the companies in the Nasdaq 100, which represents the 100 largest nonfinancial companies on the Nasdaq.

These QQQ shares are built to track closely the price and yield of the underlying index.

For more on the Nasdaq 100 tracking stock, see this previous

TheStreet.com

story or visit the Amex's

Web site.

Moving into traditional mutual funds, you'll find just a few options.

The $2.2 billion

(RYOCX) - Get Report

Rydex OTC fund also tracks the Nasdaq 100 index by buying stocks in the index, in addition to stock index futures, options on index futures and options to mimic the performance of its benchmark.

The fund has done a good job mimicking the index's return. For this year through Wednesday, this fund was up 92.9% compared to the 94% price climb of the actual index.

American Express

launched the broker-sold

AXP Nasdaq 100 Index

fund on Oct. 18, and Wichita, Kan.-based

Ranson & Associates

launched a no-load

Nasdaq-100 Index

fund on Dec. 7. Like Rydex OTC, these funds are content merely to mimic the index's returns.

But the $90 million

(POTCX)

Potomac OTC Plus fund and the $708 million

(UOPIX) - Get Report

ProFunds UltraOTC fund go a step further.

These two funds don't merely track the Nasdaq 100. OTC Plus tries to produce 125% of the Nasdaq 100's return. The UltraOTC goes for 200% of the index's returns. Both use futures and options to juice returns.

For 1999, OTC Plus is on target with its goal, returning 118.3% through Wednesday. UltraOTC is returning 210%, comfortably ahead of its goal.

Those are pretty good returns compared to the average mutual fund. Keep in mind, though, that these funds have the same potential for exponential returns on the downside. If the Nasdaq 100 collapses, they'll fall even further.