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You've Never Heard of The Best Two Investment Funds in America

By Dr. Steve Sjuggerud
Wednesday, July 11, 2007

17,000 mutual funds... That's the number of funds that Morningstar tracks.

The two top performers year-to-date are up 62% and 56%, respectively. Nothing else comes close (Third place year-to-date is up a "measly" 47%).

Impressively, both of these top-two performing funds are run by the same company.

This company also has the top-performing fund over the last 12 months. It is up an incredible 123% – beating the second-place performer by an amazing 45 percentage points.

Who is this company?

Chances are you've never heard of 'em...

It is called Direxion Funds.

Direxion launched most of its funds last summer, so one year is about all the data we have on them. But the performance of some of the funds has been extraordinary...

The top-performing mutual fund out of all 17,000 in America is the Direxion Latin America Bull 2x Fund. And the second-place performer is the Direxion Commodity Bull 2x Fund (which is based on commodity-related stocks, not commodities).

Like funds from ProFunds and Rydex, the folks at Direxion offer some funds that attempt to earn twice the daily return of a particular index.

For instance, when investors absolutely hated stocks last summer, we bought the ProFunds Ultra Small Cap Fund in True Wealth. The fund attempts to double the return of small cap stocks... and we made 30% in around six months.

If you want to make directional bets on stocks, funds like these could be for you (particularly in retirement accounts, where you can't easily make leveraged bets or bet against something).

But a word of warning here... these funds definitely cut both ways.

Sure, Direxion Funds has the top two performers. But it also has the dubious claim of having some of the worst performers as well...

Out of the 17,000 funds Morningstar covers, only a few dozen are down by 25% or more in the last 12 months. You may be surprised to learn that nearly all of them are leveraged funds from ProFunds, Rydex, and Direxion. Direxion Funds are particularly worth noting: Five out of the six worst-performing funds in America in the last 12 months are from Direxion.

Performance like this led Reginald Laing, an analyst at Morningstar, to call the funds "a fairly gimmicky idea" that "doesn't make sense for the vast majority of investors."

I don't currently recommend any Direxion Funds. But I have nothing against funds like them. In both of my letters – True Wealth and Sjuggerud Confidential – we currently hold Rydex and ProFunds funds. Bought at the right time, these funds can be low-risk ways to make a bundle.

If you control your risk with trailing stops, as I always recommend, "gimmicky ideas" like these can make you some real money.

Good investing,


Market Notes


Yesterday, we agreed with BCA Research that a full-blown mania in oil stocks could easily hit the markets. It could join the mania happening in agriculture right now.

Blame it on biofuels, blame it on the developing world's desire to eat better, but we're in full "dartboard mode" in agriculture stocks right now... with ag giant Monsanto gaining 250% in the past three years.

Whether it's Monsanto (seeds), Lindsay (irrigation), CF Industries (fertilizer), John Deere (equipment), or Bunge (processing), every company related to food production is soaring as momentum players pile into the sector.

When will it end? We'll guess a severe correction will coincide with a slew of Agriculture & Farming ETF offerings. We haven't read about many such funds in the paper yet, but Wall Street is never shy about releasing investment vehicles hundreds of percent too late.

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