The Best, Worst 'Inverse' Funds for Your Portfolio

If 200% leverage is not risky enough for you, Direxion Funds has open-end funds designed to match -250% of the daily movements of the Nasdaq 100 and the S&P 500. If the market takes a swan dive, these funds could shoot the moon.

Inverse funds are not restricted to major U.S. stock indexes. The three falling sectors -- precious metals, Japanese stocks and real estate -- translated into inverse fund successes.

The winner over the last month is the (SPPIX Quote)ProFunds Short Precious Metals (SPPIX), which gained 3.99%. The U.S. dollar bottomed on May 1 and has been climbing in value against the major currencies. This helps to lower the price of gold.

A sell-off in Japan's Nikkei 225 Stock Average, amplified by 200% inverse leverage, turned into a positive return of 2.81% for (UKPIX Quote)ProFunds Ultra Short Japan (UKPIX). Lastly, the real estate sector's loss is (SRPIX Quote)ProFunds Short Real Estate's (SRPIX) 2.78% gain.

Inverse funds are generally grouped together as contrarian funds. But, not all contrarian funds short the market. A group of funds that professes to be contrarian plays the long side of the market and did well over the last month.

The (JSVAX Quote)Janus Contrarian Fund (JSVAX) was up 5.57%; the (PARNX Quote)Parnassus Fund (PARNX) increased 2.51%. The (FCNTX Quote)Fidelity Contrafund (FCNTX) advanced 2.17%, and (MATRX Quote)GAMCO Mathers Fund (MATRX) rose 0.67%.

These gains justify the contrarian label with a strategy to find out of favor companies with unrecognized value.

If we do head into a recession and a major market sell-off, inverse contrarian funds are more appropriately designed to capture that gain than an out of favor contrarian style. But be warned, companies won't stop trying to make profits, so over the long run inverse funds are likely to be losers.

Over the past week ending Thursday May 10, every single inverse fund we track gained in value. Stocks sank Thursday but failed to collapse on Friday. Wait for the market to confirm its southward turn before jumping on the inverse bandwagon.

Worst-performing Inverse Funds
Fund	Ticker	Rating	Fund Type	1 Month Total Return
UltraShort Dow30 ProShares	DXD	U	ETF	-9.35%
Rydex Inverse Dynamic Dow Fund	RYCWX	E+	Open-End	-8.98%
ProFunds Ultra Short Dow 30 ProFund	UWPIX	U	Open-End	-8.97%
Direxion NASDAQ 100 Bear 2.5X Fund	DXQSX	U	Open-End	-6.77%
Direxion S&P 500 Bear 2.5X Fund	DXSSX	U	Open-End	-6.44%
UltraShort QQQ ProShares	QID	U	ETF	-5.95%
UltraShort Russell1000 Growth ProShares	SFK	U	ETF	-5.85%
UltraShort S&P500 ProShares	SDS	U	ETF	-5.46%
Rydex Inverse Dynamic OTC Fund	RYVNX	E-	Open-End	-5.37%
ProFunds UltraShort OTC ProFund	USPIX	E-	Open-End	-5.37%
Source: Bloomberg