Mid Cap 400 futures comprising 43% of fund holdings good or bad?

Discussion in 'Stocks' started by BA736, Feb 17, 2008.

  1. BA736


    I currently hold two mid cap blend funds UMPIX and LZMOX. The UMPIX Profunds Ultra Mid Cap as of 10/31/07 had 43% of its assets in Mid Cap 400 futures.

    Now I know this is very dated now but was that a risky or a smart play. From what I can see it looks like this was or is a hedging strategy which would protect the fund from downside risk to the broader market. In hind sight it diddnt seem to have worked that well since its my biggest loser.

    Also going forward I really just want to dump these two mid cap blend funds and cut my losses. Does anyone see any hope for mid caps in the next 3-6 months?
  2. Without looking into that particular fund, I'd say it wasn't a hedge against downside, it was a way to passively manage the fund while still collecting the management fees. They plunk close to half of the assets into the index futures, then only actively manage the other half (or whatever isn't in cash at least). That way, they know close to half of their fund is going to mimick it's benchmark.

    As for the future of mid-caps, no one knows for sure. Generally, if you only have a 3-6 month time frame, the market isn't a great choice if you don't know what you're doing. If you have a longer time frame and these funds are in a taxable account, you can sell them to realize the loss, then put the proceeds into a similar fund (or an ETF) and get a new cost basis.