4 Bear Funds for a Turbulent World

by Tom Taulli | September 6, 2011 10:10 am

There are only a handful of true bear funds. Essentially, the portfolio managers use short selling to make money when stocks fall. But it can be a risky strategy — especially when markets are in the bull phase. It’s not uncommon to see sharp negative returns.

Yet when a bear fund is part of a broader portfolio, the overall risk can fall. All in all, you are providing a hedge.

Now keep in mind that this is a common approach for some of the world’s top hedge funds and investors. Hey, Carl Icahn made $100 million in August because of a short position in the S&P 500.

So what are some bear funds to consider? Let’s take a look:

Federated Prudent Bear

By far, the Federated Prudent Bear Fund (MUTF:BEARX[1]) is the largest in the bear category, with $1.6 billion in assets. Then again, it has a top-notch management team, which has more than 45 years of combined investment experience.

As for the fund, about 36.5% of the portfolio is in short positions. But there also is 47.9% exposure to futures. And, to provide some stability, the fund has investments in safe-haven assets like gold and mining stocks.

With the market plunge, the Prudent Bear fund has had a standout performance. Over the past three months, the return was 11.55%. Some of the top short positions include Ford (NYSE:F[2]), Paychex (NASDAQ:PAYX[3]) and HSBC (NYSE:HBC[4]).

PIMCO StocksPLUS TR Short Strategy

Bill Gross, who is the co-CIO and co-founder of PIMCO, is known as the “king of bonds.” Of course, he manages the PIMCO Total Return Fund (MUTF:PTTRX[5]), which has $245.3 billion in assets.

But Gross also manages the PIMCO StocksPLUS TR Short Strategy Fund (MUTF:PSSAX[6]). With it, he focuses on ways to hedge falls in the S&P 500, such as with extremely complex derivatives like futures and swaps.

Because these instruments require only small amounts of capital, Gross uses the additional cash for investments in fixed-income assets (mostly high-rated bonds). It’s a smart way to help boost returns.

Rydex Inverse 2x S&P 500 ETF

The Rydex Inverse 2x S&P 500 ETF (NYSE:RSW[7]) is known as a leveraged inverse fund. This means that if the market falls 1%, your investment will increase by 2%.

Sounds like a good idea? It is. But investors need to be wary of the gut-wrenching volatility. In other words, the fund probably is a better vehicle for a short-term trade.

Grizzly Short

The name says it all: the Grizzly Short Fund (MUTF:GRZZX[8]). In fact, it tries to be 100% short at all times.

The fund actually takes a quantitative approach to selecting positions — so as to take the emotion out of the trading. What’s more, the fund focuses mostly on larger equities (with market caps over $1 billion). Liquidity certainly is important when short selling.

Some of the fund’s top short positions include Meritor (NASDAQ:MTOR[9]), Boston Properties (NYSE:BXP[10]) and Range Resources (NYSE:RRC[11]).

Tom Taulli is the author of various books, including “All About Commodities.”[12] He does not own a position in any of the stocks named here.

Source URL: https://investorplace.com/2011/09/4-bear-funds-mutual-funds-bearx-pssax-rsw-grzzx/

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