I just called Rydex to follow up on this question and guess what: the customer service rep actually connected me to Ryan, one of the portfolio managers! Ryan explained that the Rydex funds invest 5-10% of their cash (depending on the fund) in short futures and swap agreements, so they are investing on margin; the other 90% – 95% of cash is invested in short-term (less than or equal to 3 months) GSE discount notes earning 5%. Thus, the interest earned more than makes up for their fees, and he thinks their return beats the ETF, because in an ETF your brokerage account is unlikely to give you 5% interest on your cash. He told me to call back anytime I have further questions: 800-820-0888.
Also the minimum investment applies only if you are opening the account with Rydex. If you are buying the shares through your brokerage account, you can invest any amount you like.
I think I may have bought this too soon; the stock market rally is continuing. Only a few Dow stocks are past their 2000 highs, but since the Dow is weighted, the entire index is up just because a few of the 30 stocks are up. Maybe this will continue until after the election?
