For Timers, a New Trading Landscape

Money managers who use mutual funds for legitimate market timing bets say they’re figuring that most major fund firms will make life far more difficult for them in the aftermath of the trading scandal.

The industry already has proposed adopting a 2% minimum redemption fee if an investor sells a fund within five days of buying it.

That’s something many market timers say they could live with, because most don’t trade in such a short span.

More problematic is that fund firms may refuse timers’ money altogether, which is within the companies’ rights.

That has been the pattern of the last few years anyway, said Ron Rowland, editor of All Star Fund Trader newsletter in Austin, Texas. Some fund companies may have been accommodating hedge funds and other favored investors in trading, but smaller managers “have found ourselves unwelcome for some time,” Rowland said.

Fortunately for market timers, they have a growing number of alternatives to conventional mutual funds.

There are three fund companies that were set up specifically to serve market timers: Rydex Funds, ProFund Advisors and Potomac Funds, all based in the Washington, D.C., area.

“Our view is that investors can be as active or as passive as they want,” said Michael Sapir, chairman of ProFunds, which offers 77 funds with about $4.6 billion in assets.

Another alternative: Exchange-traded funds, or ETFs. These are market index funds that trade on major stock exchanges. Their advantage is that they give investors the ability to buy or sell at any moment during the trading day, at prevailing prices.