Rydex on a Wild Ride in '98

Rydex on a Wild Ride in '98 Page 2

"We will provide an index based approach, but if you buy a product from us, you can trade it," said Steele. About 20% of his advisors clientele are "twitchy", that is, they trade over 15 times a year for their investors.

In addition, there are 14 capitalization weighted sector funds. Each requires a minimum capitalization and liquidity. In addition, top stocks are underweighted slightly if Rydex management feels they are dominating the index.

"Microsoft does well and money flows to Microsoft. Microsoft does well and its index does well. People see the index do well so they invest in it. Then more money flows to Microsoft. It goes around and around. Normally Microsoft would be such a huge component [of the technology sector fund] we had to manually pare that down," he said.

Finally, stocks that correlate poorly with the others are removed, so that the result is a basket of stocks that move in tandem within their sector, giving a more "pure" play.

"The money manager knows that if he is buying banking he is buying large cap weighted stocks that act like banks," he said.

Holdings are updated and published every week, so investors know what they are getting at all times.

Steele sees the bull market causing certain types of investors to revise their practices. For instance, market timers have all but given up hope on waiting for the bear market and are now increasingly rotating from sector to sector.

"Sector rotation is one of those all weather approaches," he said. "There is always something going on in a sector."

In addition, strategic asset allocators are becoming somewhat more tactical. "I see a lot of frustrated strategic asset allocators out there," he said. "Some of them are thinking of throwing in the towel to play a little catch up. Some of them are considering increasing their exposure to large growth."

Although value will bounce back, said Steele, for the moment growth still seems to have the momentum. "It's almost a self-perpetuating process," he said. "Most managers would prefer to have 20% cash at this point, but many say 'I can't afford it because I have to keep up with the Joneses down the street' and they are fully invested."

The company is not stopping here. It has 8 more funds on the drawing table and should come out with several new ones this year.