Prudent Bear (BEARX)
Over the past half year or so the Dow Jones Industrial average has been steadily falling. Typically when this happens most mutual funds tend to mirror this pattern. Investors who just like to stick their money in mutual funds instead hand picking stocks may be in for a bit of a fall as well. For those mutual fund only investors you may feel like you are stuck without many options to pull your portfolio out of this downward spiral. There are a few mutual fund options out there though.
One option that I have recently discovered are Bear Market funds. These funds specialize in shorting stocks that they feel are headed in a negative price direction. By shorting stocks, they are selling shares that they do not own in hopes of buying them back later at a lower price. Funds like these tend have a pattern that is inverse of the market as a whole.
My favorite pick out of these types of funds is the Prudent Bear (BEARX) fund. Of the 39 such funds that Fidelity offered, it was the only one that had a positive return over the last 10 years. That return was 3.62%. Not incredibly impressive, but considering that the market was working against it during the majority of that time period it isn’t anything to scoff about.
The official goal of this fund per the Fidelity website is: “The investment seeks capital appreciation. The fund seeks capital appreciation primarily through short sales of equity securities when overall market valuations are high and through long positions in equity securities when overall market valuations are low. It may hold more short equity positions than long equity positions when the dividend yield for the aggregate stock market is low relative to its historic range.”
Here are the vital return statistics:
| 1 Year* | 16.50% |
| 3 Year* | 8.92% |
| 5 Year* | 0.77% |
| 10 Year* | 3.62% |
As you can clearly see, when the market has been doing poorly, this fund has excelled. To further back up this claim, the beta of the fund as of 2/29/2008 was -.68.
The funds three largest holdings as of 12/31/2007 were: Cash offset for short futures, SPDRs, and Capstone Mining Corp. The fund’s top ten holding account for 38% of it’s total holdings.
Some negatives for the fund is that it has a decent amount of fees associated with it. Here is a rundown:
- Management Fee: 1.25%
- 12b-1 Fees: .25%
- Expense Ratio: 2.33%
These types of funds may not be the greatest long-term investment given the markets traditionally upward price movement. It can provide a nice hedge against pullbacks and mini-recessions like we may be currently be facing today. I would recommend this as a solid fund for the next six months to one year, but definitely not as a long-term investment.
Tags: bear market, bearx, fidelity, mutual fund, prudent bear