By some estimates, the current bull market in U.S. stocks is the longest or one of the longest on record. In other words, considering bear market mutual funds and related fare over the past few years has been a fool’s errand.
Bear market mutual funds come in varying shapes and strategies. For example, some actively managed asset allocation mutual funds can appear to be bear market funds because the funds’ managers shift to more conservative, less vulnerable assets during market downturns. That strategy, however, is designed more to limit losses, not capture gains, as markets swoon.
True bear market mutual funds are designed to thrive when markets sink. A common strategy among these funds is to be outright short equities as stocks decline, but some of these funds employ other methodologies.
Here are some mutual funds and exchange traded funds (ETFs) for investors to consider if they believe the current bull market is on borrowed time.
Bear Market Funds: Grizzly Short Fund (GRZZX)
Expense Ratio: 2.50% per year, or $250 on a $10,000 investment.
Minimum Investment: $10,000
The Grizzly Short Fund (MUTF:GRZZX) also requires a $10,000 minimum investment in addition that above-average annual fee, but with bear market mutual funds, investors should generally expect up-front costs that are on the higher side.
GRZZX uses a straightforward strategy. The fund’s managers look for stocks expected to decline and proceeds to short those names. Obviously, GRZZX is operating in a challenging environment for short equity funds, but over the past 15 years, this mutual fund has been significantly less bad than the Lipper Dedicated Short Bias category.
At the end of the second quarter, a combined 62% of GRZZX’s short positions were in the technology, financial services, industrial and consumer discretionary sectors.
Bear Market Funds: Federated Prudent Bear A (BEARX)
Expense Ratio: 1.76%
Minimum Investment: $1,500
The Federated Prudent Bear A (MUTF:BEARX) has a track record of over two decades and is a no-load mutual fund.
In addition to the obvious, that being short positions, BEARX also owns stocks on the long side. Bullish “positions include undervalued stocks, and may include companies from hard-asset categories such as precious metals and other natural resources,” according to the issuer.
At the sector level, technology, financial services and consumer discretionary combine for 57.6% of BEARX’s short positions. This mutual fund also shorts indexes beyond the S&P 500, ETFs and other instruments to deliver bearish exposure.
Bear Market Funds: ProFunds Short Nasdaq-100 ProFund (SOPIX)
Expense Ratio: 1.78%
Minimum Investment: $15,000/$5,000
The ProFunds Short Nasdaq-100 ProFund (MUTF:SOPIX) has a minimum investment requirement of $15,000 for individual investors and $5,000 for professional money managers. The fund has been around over 16 years and is the ideal way for investors who are bearish on the FAANG stocks or the broad technology sector to get short those assets.
Tech stocks account for 59.5% of the Nasdaq-100 Index and the five FAANG stocks combine for about 40% of that benchmark. In other words, the better FAANG performs, the more danger there is being long SOPIX. Conversely, if another tech bubble comes to pass, SOPIX would be one of the better mutual funds to own.
Bear Market Funds: Ranger Equity Bear ETF (HDGE)
Expense Ratio: 2.86%
Minimum Investment: None
Among ETFs, the Ranger Equity Bear ETF (NYSEARCA:HDGE) is one of the most seasoned. Like the aforementioned mutual funds, HDGE is an actively managed fund.
HDGE’s manager “implements a bottom-up, fundamental, research driven security selection process. In selecting short positions, the Fund seeks to identify securities with low earnings quality or aggressive accounting which may be intended on the part of company management to mask operational deterioration and bolster the reported earnings per share over a short time period,” according to AdvisorShares.
The technology, industrial and consumer discretionary sectors combine for 62% of HDGE’s weight. Some of the ETF’s individual short positions include Coty Inc. (NYSE:CTY), Yelp! Inc. (NYSE:YELP) and Caterpillar (NYSE:CAT).
Bear Market Funds: PIMCO StocksPLUS Short Fund (PSSAX)
Expense Ratio: 1.06%
Minimum Investment: $1,000
The PIMCO StocksPLUS Short Fund (MUTF:PSSAX) also features sales charges ranging from 1.75% to 3.75%, which are not avoidable unless one allocates $1 million or more to this mutual fund. Investors may also want to know that two of the fund’s three managers joined the fund just a month ago.
Relative to other bearish mutual funds, PSSAX is not particularly sexy. The fund uses S&P 500 index futures to establish short positions on the benchmark domestic equity gauge. On the other hand, that does keep costs low relative to rival mutual funds.
In three of the past four years, PSSAX has performed less poorly than the average Lipper Dedicated Short Bias fund.
Bear Market Funds: WisdomTree Dynamic Long/Short U.S. Equity Fund (DYLS)
Expense Ratio: 0.48%
Minimum Investment: None
As its name implies, the WisdomTree Dynamic Long/Short U.S. Equity Fund (BATS:DYLS) is a long/short ETF, not a straight bear market mutual fund. From a cost perspective, that is alright because DYLS is significantly cheaper than any of the other mutual funds highlighted here.
From a performance perspective, DYLS brings more good news. The ETF is up nearly 9% year-to-date, outpacing the S&P 500 by almost 175 basis points. DYLS’s long holdings are the largest domestic stocks and the fund’s short position is essentially the S&P 500, which acts as a hedge.
DYLS is a dynamic strategy meaning it can range from being entirely long, to all short or anywhere in between (long and short). Currently, DYLS holds no short exposure, but that could change it equity markets deteriorate.
Bear Market Funds: Direxion Daily CSI 300 China A Share Bear 1X Shares (CHAD)
Expense Ratio: 0.84%
Minimum Investment: None
The Direxion Daily CSI 300 China A Share Bear 1X Shares (NYSEARCA:CHAD) hails from Direxion, one of the largest issuers of leveraged ETF, but CHAD itself is not leveraged.
CHAD is designed to deliver the daily inverse performance of the CSI 300 Index, a widely followed gauge of stocks trading on mainland China, also known as A-shares. What that means is that, in a perfect world, if the CSI 300 Index falls 1%, CHAD should rise 1%.
Advantages of inverse-though-not-leveraged ETFs include lower fees and the ability to hold these funds a little longer leveraged counterparts. Still, inverse ETFs and mutual funds often use derivatives to obtain bearish exposure, a strategy that is not conducive to long holding periods and one that often leads to above-average expenses.
As of this writing, Todd Shriber does not own any of the aforementioned securities.