To make money in the stock market this week, it was not enough to be a contrarian. It helped to be downright inverted. The market selloff has been broad-based.
The
Dow Jones Industrial Average shed 5.05%, while the
S&P 500 lost 4.41% in the five trading days ending Thursday, June 26. At the same time, the S&P Midcap 400 index slipped 4.93% and the Russell 2000 Index, a small-cap benchmark, gave up 5.28%.
In all the turmoil, the average inverse fund we track gained 7.82% for the period, with the average contrarian fund losing 3.33%. As a group, they averaged a gain of 6.30%.
The best-performing contrarian or inverse fund this week is the
Direxion NASDAQ 100 Bear 2.5X Fund(DXQSX Quote - Cramer on DXQSX - Stock Picks), which jumped 16.79% for the period under review. This fund attempts to deliver 250% of the inverse performance of the
Nasdaq 100 Index, while the third-place
ProFunds Ultra Short NASDAQ-100 ProFund(USPIX Quote - Cramer on USPIX - Stock Picks) targets 200% opposite returns.
One of the members of the Nasdaq 100,
UAL Corp(UAUA Quote - Cramer on UAUA - Stock Picks) (the parent of United Airlines) stalled out and plummeted 31.44%.
The acquisition speculation buzz wore off at
Hansen Natural(HANS Quote - Cramer on HANS - Stock Picks) as it became less likely that this maker of Monster energy drinks would get bought by
Anheuser-Busch(BUD Quote - Cramer on BUD - Stock Picks) as the latter company fends off In Bev's $46.3 billion unsolicited cash offer. Lastly,
Leap Wireless International(LEAP Quote - Cramer on LEAP - Stock Picks) stumbled 16.84% after disclosing the sale of $200 million in convertible debt capable of diluting common ownership.
The second best inverse performer is the
UltraShort Financials ProShares(SKF Quote - Cramer on SKF - Stock Picks), up 14.75%, which TheStreet.com Ratings Banking Analyst Philip van Doorn and I wrote about earlier this week in our
article on How to Play Crumbling Financials.
Amazingly, this fund is up 47.59% year-to-date and 101.10% for one year.
Citigroup(C Quote - Cramer on C - Stock Picks), which may have second-quarter writedowns of as much as $8.9 billion, was off 12.40% this week and weighed heavily on this group.
MBIA(MBI Quote - Cramer on MBI - Stock Picks) chopped off 31.94% of shareholder value as Fitch withdrew ratings of many MBIA products. As large holdings like
Bank of America(BAC Quote - Cramer on BAC - Stock Picks) (down 11.83% this week) and
American International Group(AIG Quote - Cramer on AIG - Stock Picks)(down 15.06%) fall, this 200% negatively leveraged fund rises in value.
| Best Performing Contrarian & Inverse Funds for the Week Ending Thursday June 26 |
| Fund |
Ticker |
Rating |
Fund Type |
1 Week Total Return |
| Direxion NASDAQ 100 Bear 2.5X Fund |
DXQSX |
U |
Open-End |
16.79% |
| UltraShort Financials ProShares |
SKF |
C |
ETF |
14.75% |
| ProFunds Ultra Short NASDAQ-100 ProFund |
USPIX |
E- |
Open-End |
13.42% |
| Rydex Inverse OTC 2x Strategy Fund |
RYVNX |
E- |
Open-End |
13.31% |
| UltraShort FTSE/Xinhua China 25 ProShares |
FXP |
U |
ETF |
12.88% |
| UltraShort QQQ ProShares |
QID |
E- |
ETF |
12.81% |
| UltraShort Russell2000 Growth ProShares |
SKK |
D- |
ETF |
11.66% |
| UltraShort Russell2000 ProShares |
TWM |
C- |
ETF |
11.42% |
| ProFunds Ultra Short Small-Cap ProFund |
UCPIX |
E- |
Open-End |
11.14% |
| Rydex Inverse Russell 2000 2x Strategy Fund |
RYIRX |
U |
Open-End |
11.10% |
| Source: Bloomberg & TheStreet.com Ratings |
The worst performer this week is the
Parnassus Fund(PARNX Quote - Cramer on PARNX - Stock Picks), off 6.05%. The fund seeks to find out-of-favor stocks with good future growth prospects. But I had no idea that top-10 holdings
Intel(INTC Quote - Cramer on INTC - Stock Picks),
Cisco Systems(CSCO Quote - Cramer on CSCO - Stock Picks) and
Google(GOOG Quote - Cramer on GOOG - Stock Picks) were out of favor with the investment community.
That's not the case with
Pulte Homes(PHM Quote - Cramer on PHM - Stock Picks), down 10.76%;
SLM Corp(SLM Quote - Cramer on SLM - Stock Picks), down 14.01%; and
Freddie Mac(FRE Quote - Cramer on FRE - Stock Picks), down 21.65%. Mortgage rates hitting 9-month highs are hampering refinancings and impeding the purchase of new Pulte homes. Sallie Mae is in the process of eliminating 2000 employees to cope with reduced government subsidy levels.
The second worst performer is the
RiverSource 120/20 Contrarian Equity Fund(RCEAX Quote - Cramer on RCEAX - Stock Picks), which lost 5.75% of net asset value, not including the 5.75% front load.
Ford Motor(F Quote - Cramer on F - Stock Picks) shares lost traction, skidding 19.78% as Ford's Volvo unit is laying off 1,200 employees in Sweden and offering buyouts to workers at four plants in Kentucky and Ohio.
Three airline holdings of this RiverSource Contrarian funds fell, with
US Airways(LCC Quote - Cramer on LCC - Stock Picks) off 30.79%,
Delta Air Lines(DAL Quote - Cramer on DAL - Stock Picks) off 14.42%, and
AMR Corp(AMR Quote - Cramer on AMR - Stock Picks) off 12.84%.
Domestic airline losses are expected to reach a record $13 billion in 2008 according to Air Transport Association, an industry group. That certainly qualifies for contrarian, out-of-favor status.
| Worst Performing Contrarian & Inverse Funds for the Week Ending Thursday June 26 |
| Fund |
Ticker |
Rating |
Fund Type |
1 Week Total Return |
| Parnassus Fund/The |
PARNX |
C+ |
Open-End |
-6.05% |
| RiverSource 120/20 Contrarian Equity Fund |
RCEAX |
U |
Open-End |
-5.75% |
| CornerCap Contrarian Fund |
CMCRX |
D |
Open-End |
-5.29% |
| ING Janus Contrarian Portfolio |
IJCTX |
A+ |
Open-End |
-4.85% |
| Janus Contrarian Fund |
JSVAX |
B |
Open-End |
-4.80% |
| ProFunds Short Precious Metals ProFund |
SPPIX |
U |
Open-End |
-4.45% |
| Janus Adviser Contrarian Fund |
JCNAX |
U |
Open-End |
-4.43% |
| UltraShort Lehman 20+ Year Treasury ProShares |
TBT |
U |
ETF |
-4.39% |
| Direxion 10 Year Note Bear 2.5X Fund |
DXKSX |
U |
Open-End |
-3.83% |
| Fidelity Contrafund |
FCNTX |
B+ |
Open-End |
-3.52% |
| Source: Bloomberg & TheStreet.com Ratings |
For an explanation of our ratings,
click here.
Over short-term periods, inverse funds may make sense as a defensive move in a portfolio or as short-term speculative vehicles. But for your own protection, you should read the prospectus and other fund documentation in order to understand the specific risks of each investment before making trades. The generally poor ratings of the funds on the best performing list this week underscore their past volatility and poor long-term performance.
If the U.S. economy does hang on to avoid a recession, keep an eye out for companies with the pricing power to maintain profitability. For example, the airlines need to get the message that base ticket prices should be high enough to make a profit.
Kevin Baker
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