Pessimistic Investors Crowd Bear Market Funds
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Wednesday, September 08, 2010

Pessimistic Investors Crowd Bear Market Funds

Bear market mutual funds and exchange-traded funds have been all the rage this summer, despite warnings by many investment advisers that the leveraged funds can wreak havoc on an investors' returns, Bloomberg's Ben Steverman reports.

Steverman's article cites TrimTabs Investment Research, which said assets at bear market exchange-traded funds have risen 8.3 percent, or $1.3 billion, in the past three months. During that time, assets of bear market mutual funds, though much smaller than comparable ETFs, have gone up $33 million, or 2.34 percent, a larger percentage increase than any other domestic stock category.

Michael Iachini, director of investment manager research at Charles Schwab Investment Advisory, said, "Investors, for better or worse, tend to chase performance."

Ryan Bend, portfolio manager of the Federated Prudent Bear Fund, the largest bear market mutual fund, was quoted as saying that when investor pessimism increases, his fund gets inflows.

Paul Brigandi, senior portfolio manager at Direxion, was also quoted saying that his Direxion Daily Large Cap Bear 3X Fund caters to short-term, sophisticated investors who have the time to monitor and manage the portfolio on a daily basis.

Steve Stahler, president of the Stahler Group, warned investors that Bear market funds are "really trading vehicles" and suggested investors look at real estate and foreign investments before diving into these funds.

And Aaron Reynolds, a senior portfolio analyst at Robert W. Baird, says many Bear market funds lack experienced management or a verifiable track records, and said that there are a lot more gimmicks out there than real opportunities.

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