Third Annual ProFunds Survey Shows Investors Remain Unaware of Interest Rate Impact on Bond Values
68% of investors surveyed don't understand potential negative impact of rising rates on bond values, Harris Interactive survey shows
Bethesda, MD, July 1, 2004 -- A new survey1 conducted by Harris Interactive on behalf of ProFund Advisors LLC shows that investor awareness of the impact of rising interest rates on bond investments has not grown despite changes in the interest rate environment.
The third annual survey shows that 68% of investors do not understand that rising interest rates generally have a negative impact on the value of bond investments. The percentage has remained relatively constant since the second annual survey in May 2003, which showed 65% of investors were unaware of the bond-interest rate relationship.
The third annual survey found that 74% of respondents who identified themselves as investors believe that interest rates will rise over the next two years, while just 2% believe rates will decline. That percentage of investors who believe interest rates will rise increased from 57% in 2003.
"This survey shows that nearly three-quarters of investors believe interest rates will rise over the next two years. And yet, more than two-thirds of investors are unaware of the negative impact that rising interest rates generally have on bond values," said Michael L. Sapir, Chairman and CEO of ProFund Advisors, investment advisor to the ProFunds family of innovative indexed mutual funds.
"Many investors still think of bond investments as safe havens. But if we are entering an extended period of rising interest rates, as many investment professionals believe, investors could be in for an unpleasant surprise."
Only 32% of investors responded that the value of bond investments tends to decline when interest rates rise, despite the fact that in the 12 months ended June 30, long-term interest rates have risen by nearly one percentage point and the value of the 30-year Treasury bond has declined 10.49%.
"Investors who believe that interest rates will rise and bond prices fall may want to turn a possible problem into a potential opportunity with the Rising Rates Opportunity ProFund," Sapir said.
Rising Rates Opportunity ProFund is an inverse bond fund. It seeks to move in the opposite direction of the daily price of the most recently issued 30-year U.S. Treasury Bond — the "Long Bond."
Specifically, it seeks investment results that are 125% of the opposite of the daily price movement of the Long Bond, before fees and expenses. For example, on a day the bond price falls 1% the fund should rise 1.25%, and on a day the bond rises 1% the fund should fall 1.25%.
In periods of rising rates, Rising Rates Opportunity ProFund can be used either to seek profit or hedge against potential losses in a portfolio containing bonds or bond funds, although there is no guarantee that the fund will meet its investment objective.
More information on Rising Rates Opportunity ProFund and how rising interest rates affect bond values is available at www.risingrates.com.
ProFunds is the nation's largest lineup of indexed mutual funds2. Its innovative offerings include Classic ProFunds designed to match the return of an index, Ultra ProFunds that seek to magnify an index's daily performance, Inverse ProFunds that seek to increase in value when markets decline, and a comprehensive lineup of UltraSector ProFunds that track sector and industry indexes. ProFunds does not restrict investors' abilities to react to financial or economic changes and shift their investments from one ProFund to another, although exchanges may have tax consequences.
Investing in Rising Rates Opportunity ProFund can involve certain risks, including leverage, liquidity, short sale, interest rate and repurchase agreement risks. These risks can increase volatility and decrease performance. Please see the prospectus for a more complete description of these risks. ProFunds permit active investment strategies that can decrease performance and increase expenses. For more complete information including charges, expenses and ongoing fees, interested please call 888-PRO-FNDS to receive a prospectus. Read the prospectus carefully before investing or sending money. ProFunds are distributed by ProFunds Distributors, Inc.
1Methodology: Harris InteractiveSM, via its QuickQuerySM online omnibus, fielded this survey between June 11 and 15, 2004, interviewing 2,633 U.S. adults (18+), of which 1,579 are investors. The results for the overall sample have a statistical precision of +/-3.2 percentage points and +/-3.9 percentage points for the investor sample within a 95% level of confidence. The overall data were propensity weighted to be representative of the total U.S. adult population.
2Lipper defines "indexed fund" as an open-end mutual fund (not an Exchange Traded Fund, or ETF) that falls into one of the following subcategories: pure index, enhanced index or index-based. The majority of ProFunds are categorized by Lipper as enhanced index funds.
Tucker Hewes, Hewes Communications, Inc., (212) 207-9451, firstname.lastname@example.org