Small-Cap Crash Benefits Short Stock Funds

When reviewing the five most improved and deteriorated ratings for open-end stock mutual funds of October what stands out are the twin crashes of small-capitalization stocks and real estate companies.

Two of the funds that jumped the most in TheStreet.com Ratings' latest round of ratings short the stocks of the Russell 2000 Index. Some of the members of this index have lost more than 95% of their value in the last year, including Idearc (IAR Quote), R.H. Donnelley (RHD Quote), Downey Financial (DSL Quote) and Elixir Gaming Technologies (EGT Quote).

The first of these funds, ProFunds Ultra Short Small-Cap ProFund (UCPSX Quote), tracks the inverse of the Russell 2000 Index with 200% leverage. The fund rose to a rating of B+ from a previous rating of E.

The second fund, Direxion Small Cap Bear 2.5X Fund (DXRSX Quote), does the same but with 250% inverted leverage. This fund is now rated B-, the lowest of our buy-equivalent ratings, up from E- the prior month.

Three of the five funds that dived the most in the recent measurement period focused on the real estate sector. Real estate securities, specifically real estate investment trusts, were hit especially hard.

Dropping from C+ ratings down to rock-bottom E- are Rydex Real Estate Fund (RYREX Quote), Adelante U.S. Real Estate Securities Fund (LLUYX Quote) and the Dunham Real Estate Stock Fund (DCREX Quote).

It is not a surprise that these three funds would move together, because they all have large holdings of Simon Property Group (SPG Quote), Vornado Realty Trust (VNO Quote), Equity Residential (EQR Quote) and Boston Properties (BXP Quote).

With each additional month of data, TheStreet.com Ratings updates its ranking scorecard, assigning new ratings to each fund. Below is the list of the five most-improved and five most-deteriorated open-end stock mutual fund ratings from Sept. 30 to Oct. 31.

Largest Ratings Upgrades and Downgrades Fund (Ticker), Rating Previous Rating Objective Notches Moved ProFunds-Ultra Short Small-Cap Svc (UCPSX), B+ E Small Cap 10 Up Putnam College Adv Aggr 1987 A (No Ticker), A- D- Asset Allocation - Domestic 9 Up Direxion Small Cp Bear 2.5X (DXRSX), B- E- Small Cap 9 Up PL Port Optz Mod-Consrv Class R (POBRX), A D+ Growth & Income 8 Up Russell LifePoints 2010 Strategy R2 (RJLTX), A D+ Asset Allocation - Domestic 8 Up Oppenheimer Gold/Spec Min A (OPGSX), E- C+ Sector - Precious Metals 8 Down Dunham Real Estate Stock C (DCREX), E- C+ Sector - Real Estate 8 Down Adelante US Real Estate Sec Y (LLUYX), E- C+ Sector - Real Estate 8 Down Rydex Series-Real Estate A (RYREX) E- C+ Sector - Real Estate 8 Down Neuberger Berman AMT Social Resp I (No Ticker), E B Growth - Domestic 9 Down Source: TheStreet.com Ratings

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