Bear Market Mutual Funds

Abstract

Bear market mutual funds are regarded as very risky financial instruments. Despite this, this particular financial instrument has fared very well in the exchanges.

The write up below furnishes details of the mutual funds of the bear market.

Bear market mutual funds is listed higher up in the list of mutual funds, which have registered an upward trend. Bear market mutual funds are invested in, when the conditions prevailing in the market are not very “investor friendly”. Most of the time, these mutual funds are ridiculed due to the fact that they can be very risky an investment. However, few experts believe that it is not as bad as it is fathomed.

Types of bear market mutual funds:

Bear market mutual funds occur in two different varieties:

Index funds

Funds, which are managed actively.

Direxion Nasdaq-100 Bear 2.5 X:

Majority of the bear market mutual funds are so designed so as to trace a market index in particular, in reverse. This is true pertaining to the index funds. For instance, the market benchmark, Direxion Nasdaq-100 Bear 2.5 X, helps in producing 2.5 times of “Nasdaq 100's daily return” inverse. Direxion Nasdaq-100 Bear 2.5 X is a highly volatile fund. Despite this fact, so far it has been the highest performer as of 2008. The actively managed funds help in making money even when the stock market is dropping.

Among the actively managed funds, the Prudent Bear has fared very well over the past couple of years. It was observed that despite the fact that S&P 500-stock increased by 10% annually, when the Prudent Bear registered returns of at least 1%(minimum).

Strategies adopted by Prudent Bear- reasons for its success:

It incurs heavy expenditure on stocks of precious metals- a hedge against the weak dollar, unstable political scenario and increasing inflation rate.

Individual stocks are sold short.

Buys put options, index futures are sold short.

It has been observed that bear market mutual funds have made their appearance in most of the indexes. Some of the “broad market indexes”, tracked by bear funds include the following:

Stripes pertaining to foreign stocks.

S&P 500

Russell 2000 index pertaining to small firms. Mutual Funds Investment