By some definitions, the BTI investment strategies entail market-timing techniques. Market timing is a broad term, and used loosely in the investment industry. It can mean different things depending on the context in which is it used.
ProFunds is a mutual fund company that provides funds designed for the purpose of market timing. For the most part, these mutual funds are not meant for buy-and-hold investors. ProFunds mutual funds are designed for investors to frequently buy and sell in attempts to take advantage of short-term market trends.
Market timing, as mentioned by New York Attorney General Eliot Spitzer in the fund scandals, is frowned upon if done improperly. This includes: late trading, the manipulation of securities prices across international markets or time zones, or market-timing permitted by mutual fund companies that have funds that are not designed for that purpose. Traditional mutual funds are designed to be long-term investment vehicles. These funds are not meant for market timers to exploit, and they have an obligation to shareholders to discourage the practice. If the fund allows market timing in their fund, then the buy-and-hold investors that own shares of that fund are the ones who ultimately suffer, as the trading costs and expenses are incurred by shareholders.
Since Spitzer brought charges against several mutual funds and a hedge fund manager, the SEC has discovered that nearly half of the USA's 88 largest mutual fund families allow some form of market timing. ProFunds is not included in the list of companies under investigation. In fact, according to ProFunds Chairman Michael Sapir, ProFunds has seen assets increase by $200 million since news of the trading scandal broke. A recent statement by ProFunds was released to dispel any concerns investors may have regarding their funds:
“We believe none of this should have a negative impact on ProFunds investors. ProFunds are designed to accommodate large and frequent asset movements and our exchange policies are fully disclosed to all investors. We will continue to offer the flexibility active investors need to execute their investment strategies.”
Market Timing & Fund Scandal Terms:
- Late trading: Placing a buy order for a mutual fund after 4 p.m. ET and getting it at that day's closing net asset value.
- Forward pricing: Law that states mutual fund shares bought after 4 p.m. ET are priced at the next day's closing net asset value.
- Timing: Trading in and out of a mutual fund to exploit short-term moves in the securities they own.
- Timing police: Officials at a mutual fund company who watch for investors trying to violate rules against short-term trading in and out of mutual funds.
- Timing under the radar: Placing trades in mutual funds through intermediaries or in other ways that make the trading difficult to spot.
- Stale prices: When a fund's net asset value doesn't reflect the changed value of its holdings.
- Sticky assets: Money that is invested in a fund for a long period of time and generates fees for a fund company.
- Time zone arbitrage: Buying a mutual fund that owns securities in a foreign market at the previous day's net asset value, knowing events that occurred since that market closed will create an automatic profit.
Home | About Us | Investing | Concepts | Account Info | Performance | Contact Us 
