Frequently Asked Questions
Investing in ProFunds
How to make an initial purchase(see Shareholder Services Guide, page 1)
Minimum initial investment(see Shareholder Services Guide, page 1)
How to purchase additional shares(see Shareholder Services Guide, page 1)
Sending money via wire transfer(see Shareholder Services Guide, page 1)
How to exchange or redeem shares(see Shareholder Services Guide, pages 3, 4)
Frequent purchases/redemption of shares(see Shareholder Services Guide, page 6)
Transaction cut-off times(see Shareholder Services Guide, page 5)
Automatic investment/withdrawals(see Shareholder Services Guide, page 7)
Investing through a financial intermediary(see Shareholder Services Guide, page 7)
The difference between Investor Class shares and Service Class sharesInvestor Class shares are traditional no-load/no service fee shares. There are no entry or exit fees, no transaction fees, no 12b-1 fees and no service fees. Service class shares are only available to accounts listing a financial professional. Like investor class shares, they have no entry or exit fees and no transaction fees. But they do include distribution and shareholders service fees:
- 0.75% 12b-1 fee (available to registered broker-dealers)
- 0.25% shareholder service fee (for certain designated services)
- Up to 1.0% annual service fee paid monthly to the financial professional
Opening an account(see Shareholder Services Guide, page 3)
Account minimums(see Shareholder Services Guide, page 5)
Signature guarantee: what it is and why it's required(see Shareholder Services Guide, page 6)
About telephone and Internet transactions(see Shareholder Services Guide, page 6)
Changing the beneficiary information on an IRA accountChanging beneficiary information on an account must be done by completing a Designation of Beneficiary for Retirement Plan Account Form.
Account statements and confirmations(see Shareholder Services Guide, page 7)
PaperFree TM: what it is and how it works(see Shareholder Services Guide, page 7)
Group accounts: what they areA group account is a simple and efficient way to control multiple accounts that are exchanged identically between funds. For example, instead of calling in and citing many different individual account numbers and instructing that all accounts be exchanged from fund A to fund B, financial professionals can simply instruct the group to be exchanged from fund A to fund B. Even better, the group exchange online can be done with just a few simple steps. We recommend using this service if you have three or more accounts that trade the same way. Having a group account has another important benefit; it gives you the ability to view account balances online for every account assigned to the group. Financial Professionals can create or modify existing groups directly using ProFunds Account Access.
Setting up an online group trading accountProFunds Account Access allows financial professionals to manage their groups' activities quickly, conveniently and easily. To access group trading features, navigate to the Groups tab within ProFunds Account Access. To create or modify groups, click on the Manage tab within Groups.
How ProFunds are different from conventional index fundsMany ProFunds seek to provide a multiple, the inverse, or a multiple of the inverse of the return of a benchmark. There are factors to consider, such as leverage and compounding, when purchasing ProFunds.
Leveraged ProFunds, such as Ultra ProFunds, UltraSector ProFunds and some non-equity ProFunds seek to magnify index performance by using leverage. Leverage offers a means of magnifying market movements into larger changes in an investment's value and provides greater investment exposure than an unleveraged investment. Leverage also should cause a fund to lose more money in market environments adverse to its daily investment objective than a fund that does not employ leverage.
Inverse ProFunds seek to provide the inverse or a multiple of the inverse of the performance of a benchmark. They use derivatives to seek short exposure, which may increase volatility and decrease performance under certain market conditions.
Special risks involved with ProFundsThe leverage techniques and derivatives used in some ProFunds magnify gains and losses and result in greater volatility than conventional index funds. More details about ProFunds' risks can be found in the summary and full prospectuses.
About Geared (Leveraged and Inverse) FundsGeared (leveraged and inverse) funds, which seek to provide a multiple (e.g., 2x or -1x) of the daily returns of an index or benchmark, have become valuable tools for knowledgeable investors seeking to implement a wide variety of investment strategies. ProFunds is committed to providing information to help investors better understand how these tools might—or might not—be appropriate for them. Below are answers to frequently asked questions about leveraged and inverse funds:
Who invests in geared fundsGeared funds are most appropriate for knowledgeable investors who are familiar with the benefits and risks associated with these types of products, and who have an understanding of investment concepts and practices ( Are Leveraged and Inverse Funds Right for You?). Shareholders, or their advisors, should be prepared to monitor their geared fund positions closely, as often as daily, and should use them as part of a diversified portfolio.
The investment objectives of geared fundsA leveraged ETF is designed to provide a multiple (e.g., 2x or 3x) of the return of an index or other benchmark, usually for a single day, before fees and expenses. An inverse fund is designed to provide a multiple of the opposite (e.g., -1x, -2x, -3x) of the return of an index or other benchmark, usually for a single day, before fees and expenses.
Common uses for geared fundsGeared funds are valuable tools that can be used in a variety of ways by knowledgeable investors. Some examples include:
- Using the magnified exposure of a leveraged fund to seek greater profits (of course, losses are also magnified).
- Committing less cash to target a specific level of exposure using a leveraged fund.
- Using an inverse fund to help hedge a portfolio position.
- Fine-tuning exposure (e.g., using an inverse fund to reduce exposure to a sector without selling holdings).
Geared Investing: An introduction to leveraged and inverse funds
Geared Fund Performance: Understanding leveraged and inverse funds
Geared funds' ability to achieve their target returns over periods longer than a dayMost geared funds seek to achieve their target returns for a single day. Returns over periods beyond a day can be significantly lower or higher than the index return times the fund multiple. Nevertheless, although no one can predict future performance, Joanne Hill, PhD, and George Foster, CFA, conducted an historical study that showed a high likelihood of approximating the daily target over short periods. The shorter the period, and the lower the volatility of the underlying index, the more likely returns were to approximate the daily target. Longer and more volatile periods tended to show a greater deviation from the daily target. Using historical data, a model based on 2x the daily return of the S&P 500 index showed a 90% likelihood of producing a return between 1.75x and 2.25x the index return over any 30-day period over the last 50 years. (Models based on an index with higher volatility would have deviated more.)1
Four factors significantly affect how close daily compounded returns are to longer-term index returns times the fund's multiple: the length of the holding period, index volatility, whether the multiple is positive or inverse, and its leverage level. Longer holding periods, higher index volatility, inverse multiples and greater leverage each can lead to returns further from the multiple times the index return.
Why the performance of geared funds over time is greater or less than the multiple of index performanceMany factors can affect the performance of geared funds over time, including compounding, a universal mathematical concept that affects the returns of all investments. It is important for investors to understand how compounding affects the returns of investments under differing market conditions, including upward-trending, downward-trending and volatile markets. It is critically important that leveraged fund investors understand that the effect of compounding on geared funds is magnified, and can cause gains and losses to occur much faster, and to a greater degree, than the returns of unleveraged investments. Longer holding periods, higher index volatility, inverse multiples and greater leverage each affect the impact of compounding on returns.
Why geared funds "reset" their exposure dailyResetting exposure in a geared fund is designed to provide constant results to investors for each day the markets are open. If these funds did not reset their exposure each day, the leverage of the funds would vary each trading day. The exposure of the fund to its benchmark, over time, could easily become very small (e.g., less than 1x) or very large (e.g., more than 5x). It is not possible for an open-end fund that does not reset its exposure each day to provide a specified, constant daily leverage level regardless of the time the investment in the fund is held.
Holding geared funds for longer than a dayThe investment objective of most geared funds is to seek a multiple of an index return for a single day. Geared funds can also be used for longer periods, but the return of the fund can be significantly different than the index return times the fund multiple. Investors seeking returns for periods longer than a day that are closer to the index return times the fund multiple should monitor their investments and rebalance as needed. An investor's time horizon may be based on many factors, such as market outlook and risk tolerance. Investors may need to rebalance more frequently in funds with higher index volatility, inverse multiples and greater leverage. A rebalancing strategy will involve transaction costs and can generate tax consequences. Rebalancing does not guarantee specific future results and may result in investment losses.
Strategies to increase the chance of achieving returns close to the daily target over timeAcademic research2 conducted on 2x and -2x multiples supports the idea that a basic rebalancing strategy for geared funds may help an investor to achieve returns close to 2x or -2x the index return over time. This rebalancing strategy uses a calculation to determine the amount to add to or reduce the investment in a geared fund, such that the investment exposure held is in line with the targeted return for the period. Rebalancing can be performed at fixed time periods (e.g., weekly or monthly), or it can be triggered when a specified return threshold is reached. Investors may need to rebalance more frequently in funds with higher index volatility, inverse multiples and greater leverage. A rebalancing strategy will involve transaction costs and can generate tax consequences. Rebalancing does not guarantee specific future results and may result in investment losses.
1 Study by Hill and Foster of ProShare Advisors, published in September/October 2009 issue of Journal of Indexes.
2 Path Dependence of Leveraged ETF Returns, Marco Avellanda & Stanley Zhang. New York University, May 19, 2009. Rebalancing Leveraged and Inverse Funds, Joanne M. Hill & Solomon G. Teller, Institutional Investor Journals, 8th Annual ETF Guide, October 2009.