Inverse Funds Clean Up in Market Rout

For inverse funds, good things do come in small packages -- at least they did over the five trading sessions ended Thursday July 26.

The Dow Jones Industrial Average of large bellwether stocks finished the period down 526.84 points, or 3.76%, from 14,000.41 on Thursday July 19. But that was only a minor decline compared with the 6.47% drop in the S&P 600 Small Cap Index and the 7.03% walloping of the Russell 2000 Index. True to its name, the S&P 400 Mid Cap Index split the difference between big- and small-caps, losing 5.78% for the week.

Inverse mutual funds and exchange-traded funds are designed to increase in value as the indexes they track decline. The 47 inverse funds we follow averaged an oversized total return of 8.87% during the week.

Just as small- and mid-cap stocks were hurt worse than big stocks, the best-performing funds were those that used leverage to bet against the smaller fries. The largest gainer of the bunch, the UltraShort Russell2000 Value ProShares(SJH Quote), super-cruised to a return of 15.96%. The fund is designed to track twice the inverse of the performance of the Russell 2000 Value Index on a daily basis. ...