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Updates
ProFunds Expands Rising Rates Options
Rising Rates Opportunity 10 ProFund added to popular strategy
On January 10, 2005, ProFunds added another Bond Benchmarked fund to its lineup of more than 40 mutual funds. The fund, Rising Rates Opportunity 10 ProFund , is an inverse bond fund benchmarked to the 10-year U.S. Treasury note.
The fund seeks daily investment results, before fees and expenses, that correspond to 100% of the inverse (opposite) of the daily price movement of the most recently issued 10-year U.S. Treasury note.
Background of the Rising Rates Strategy
Despite the series of recent Federal Reserve interest rate hikes, short-term interest rates remain near historic lows. Many analysts believe both short- and longer-term interest rates may increase further, causing bond prices to decline. (Although long-term rates do not move in lock-step with short-term rates, in the past they have tended to move in the same direction.)
To provide investors with the chance to turn the possible negative impacts of rising interest rates into a potential opportunity, ProFunds launched Rising Rates Opportunity ProFund in May 2002. It has become one of ProFunds' largest funds, popular with investors seeking to offset the adverse impact of (hedge) or profit from the effects of rising interest rates.
Both Rising Rates Opportunity ProFund and Rising Rates Opportunity 10 ProFund are designed for investors who want to hedge existing bond investments against the adverse impact of rising rates rather than sell their bond holdings, or investors seeking to profit in a rising rate environment.
Bond Benchmarked ProFunds
ProFunds opened the Rising Rates Opportunity 10 ProFund to offer investors another option to deal with a rising rate environment: Rising Rates 10 can be used to offset losses (hedge) in shorter-term maturities or as a less aggressive way to seek profit than the Rising Rates Opportunity ProFund during a period of rising rates.
Differences between the Rising Rates ProFunds
Maturity: Rising Rates Opportunity 10 ProFund is benchmarked to the most recently issued 10-year U.S. Treasury note, while Rising Rates Opportunity ProFund is benchmarked to the most recently issued 30-year U.S. Treasury bond. The value of securities with longer maturities tends to fluctuate more in response to interest rate changes than securities with shorter maturities.
Magnified Returns: Rising Rates Opportunity 10 ProFund does not seek magnified returns. The fund seeks to return the direct inverse (opposite) of the most recently issued 10-year U.S. Treasury bond. So on a day the bond falls by 1%, the fund should rise approximately by 1%, less fees and expenses, and on a day the bond rises by 1%, the fund should fall by approximately 1%.
Rising Rates Opportunity ProFund, by contrast, seeks to provide magnified exposure to its benchmark security. It seeks daily returns of 125% of the inverse of the most recently issued 30-year U.S. Treasury bond, before fees and expenses. So on a day the bond falls by 1%, the fund should rise approximately by 1.25%, and on a day the bond rises by 1%, the fund should fall approximately by 1.25%.
For more details on the Rising Rates strategy, please visit www.risingrates.com .
The Rising Rates Opportunity and Rising Rates Opportunity 10 ProFunds involve certain risks , including in all or some cases, leverage, liquidity, concentration, non-diversification, interest rate, market risk, correlation risk, aggressive investment technique risk and repurchase agreement risks.
Rising Rates Opportunity and Rising Rates Opportunity 10 ProFunds should lose money when their underlying securities rise — a result that is opposite from traditional mutual funds. All ProFunds permit active investment strategies that can decrease performance and increase expenses.
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