A family of investment funds introduced by BetaPro Management Inc. of Toronto is designed to facilitate market-timers who want to trade frequently in and out of funds.

Although regular mutual funds are required to implement measures to discourage active traders and market-timers so long-term investors are not hurt by speculative activities, the BetaPro funds allow traders to follow their convictions and make sudden shifts without being subject to fees and penalties. They are sold by prospectus but regulated as commodity pools. Therefore, they are not subject to the rules of ordinary mutual funds.

“The BetaPro funds are for people who want to hedge or take advantage of anticipated market moves and can’t employ those strategies with regular mutual funds,” says
Philip Armstrong, president of Toronto-based Jovian Capital Corp. , a financial services holding company that owns a significant piece of BetaPro. “Under our fund prospectus, there are no penalties for active trading.”

The 10 Horizon BetaPro funds offer investors the opportunity for short or long exposure in five categories: Canadian bonds, crude oil, Nasdaq-listed stocks, Canadian stocks and the U.S. dollar. Exposure is leveraged by 200% to magnify returns, both negative and positive.

“The funds are designed to allow people to time the market and take advantage of trends,” says Armstrong. “They can use the funds independently or in combination to build hedging strategies.” For example, an investor who owns energy stocks can hedge against falling oil and gas commodity prices by owning the Bear Version of BetaPro
Crude Oil Fund, which will gain if oil prices drop.

The funds gain exposure to sectors through highly liquid futures contracts. They can be easily traded to accommodate investors who want to engage in rapid in-and-out trading.
Minimum investment is $5,000. The funds offer daily liquidity and can be purchased in Canadian or U.S. dollars.

Several fund companies, including AGF Funds Inc., AIC Ltd., CI Mutual Funds Inc.
and I.G. Investment Management Inc. , were recently fined for failing to protect investors in their funds from the actions of other investors conducting frequent trades to benefit their own accounts. Market-timers swooped in and out of funds with foreign holdings to take advantage of discrepancies between the stale prices of securities held in fund portfolios and the current market value of securities trading on foreign exchanges after Canadian markets closed, expecting to profit as fund valuations caught up.

Since their run-in with the regulators, Canadian fund firms have been cracking down on frequent trading. They have stepped up trade monitoring and imposed fees on
inappropriate short-term trades.

“Most fund companies apply fees and penalties to discourage short-term trading,” says Dan Hallett, president of Windsor-based Dan Hallett & Associates Inc. “By contrast, BetaPro funds encourage short-term trading and market-timing. If investors think the market is going down, they not only can sell their long exposure but can also go short.
And not only can they go short, they can get leveraged returns. The problem is people often get market direction wrong.” IE