NEW YORK (
) -- Call it the bad bear news.
Sixteen of the 20 worst-performing stock mutual funds in the fourth quarter bet against a rebound in equities, sparking contrarian-fund carnage. Investors even took in stride the most recent dismal payroll report showing 85,000 U.S. jobs were lost in December, as fewer jobs means lower payroll expenses in the short term, more fiscal stimulus, sustained low interest rates and a faster route back to long-term profitability. To think that bear funds were all the rage a year ago.
Of the contrarian funds, none did worse than
ProFunds UltraShort Latin America
, crashing 28% in the last three months of the year and 86% in 2009. It was the wrong time to be selling short companies like
, up 26% in the quarter, and
Itau Unibanco Holdings
, up 13%. Both are members of the
Bank of New York Latin America 35 ADR Index
The two companies are also members of the
Bank of New York Emerging Markets 50 ADR Index
, to which the second-worst performing contrarian fund,
ProFunds UltraShort Emerging Markets
is double inversely leveraged. Two other members of the index on the rise in the fourth quarter,
, up 4.4%, and
, up 11%, contributed to a 20% fourth-quarter loss for the fund.
The next three contrarian funds doubled down against the
Direxion Monthly NASDAQ 100 Bear 2x Fund
ProFunds Ultra Short NASDAQ-100 ProFund
Rydex Inverse Nasdaq-100 2x Strategy Fund
each lost 17% from Sept. 30 to Dec. 31 on gains of 14% in
, 19% in
and 25% in
ProFunds Ultra Short Dow 30 ProFund
Rydex Inverse Dow 2x Strategy Fund
shed nearly as much on Dow Industrial advances of 9.4% in
International Business Machines
, 12% in
and 9.3% in
The funds rated below are ranked in the "sell" range. They have the worst possible combination of poor performance and excessive volatility. Negatively leveraged funds have inherent risks such as the lack of diversification, daily compounding effects where the fund's results can diverge sharply from the underlying index and policies that permit frequent-trading strategies that can decrease from performance and increase expenses.
For the most highly rated mutual funds, check out our
Kevin Baker became the senior financial analyst for TSC Ratings upon the August 2006 acquisition of Weiss Ratings by TheStreet.com, covering mutual funds. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.