Unusual Gamble, Unusual Gain; Rydex Juno Profits From Betting Against Bonds to Limit Risk
In July, U.S. Treasury bonds had their worst month since Jimmy Carter was president. For investors in the $634 million Rydex Juno fund, the market's pain was their gain.</br></br>The fund bets against bonds by "shorting" them, or selling borrowed securities in the expectation that it can buy them back more cheaply. The Rockville-based fund had its best month since opening eight years ago, gaining 12.26 percent. Bonds, as measured by the Lehman Brothers aggregate U.S. Treasury index, lost 4.39 percent, the worst month since February 1980.</br></br>The fund is designed "not so much to take a gamble but to mitigate the risk in a bond portfolio," Chuck Tennes, 50, director of portfolio management at Rydex Global Advisors, said in an interview.</br></br>Bond prices plunged in July on signs the U.S. economy might be gathering enough strength to reignite inflation. That month, Pimco's $72.7 billion Total Return fund, the world's biggest bond mutual fund, managed by Bill Gross, lost 4 percent, its worst month since the fund opened in 1987.</br></br>But the bad bond news boosted the Rydex Juno fund, which was hurt during the bull market; it lost 16.7 percent last year while the 30- year bond's price gained 10.3 percent, according to a Merrill Lynch index.