Bear Market Mutual Funds
Most mutual funds have been absolutely slaughtered this year. With the market down almost 40%, the only thing you can really do is cry and hope things get better. There is one mutual fund group that has done well though, inverse or ‘bear market’ mutual funds.
These funds are similar to the inverse ETFs. They track the opposite of the market. So when the market goes down, these funds go up. When the market goes up, these funds go down.
Most of the time, when people bet against the market, they either short a standard ETF, like SPY, or they buy an inverse ETF like SDS. Note: SDS is a double daily inverse ETF, so it does double the opposite of the market. If the market goes up 1%, SDS goes down 2% and vice versa.
However, you can get inverse exposure through bear market mutual funds too. Like inverse ETFs, there are all sorts of inverse mutual funds. There are some that do the opposite of the S&P 500, like RYTPX, whereas others are more specific and do the inverse of a certain sector, like SNPIX, which is a short of the oil and gas industry.
While these funds may seem attractive now since the market has just been absolutely pummeled this year, remember that the stock market does tend to go up over time. While this year has been one for the books, the worst year since the Great Depression in fact, you have to ask yourself how much lower you really think the market may go. Most of the bear market mutual funds are leveraged too, meaning you get double exposure. So if the market has a sudden and fast rally, you will find yourself losing even more money.