Inverse, Short Stock Funds Lead First Quarter

Most stock mutual funds got beaten up in the first three months of the year.
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For the quarter ended March, the leading performers in the stock mutual fund universe were inverse funds and short funds.

With the correction in the U.S. market, the quarterly performance of funds with these strategies far outstripped other categories of funds. The top funds in our list returned an outstanding 30% and above for the quarter.

There appears to be a growing chorus of voices that suggests the credit issues and level of economic activity and unemployment in the U.S. have not reached their worst readings as yet. If investors agree there is worse to come for the market, these types of funds are the place to be.

However, investors should be prepared to incur less-than-stellar returns in the very short run if the markets bounce off lows on the way down, as they have done for much of the past year. An example of this short term loss of performance is shown by the one-month returns for U.S.-focused funds that are, in fact, negative, which indicates the market bounced in the last month and these funds were caught out of position.

These funds employ very aggressive use of leverage and can hence outperform the market substantially; however their strategies also amplify losses as well.

Here are a couple examples of the strategies being used:

DXQSX is designed to generate results that correspond to 250% of the inverse of the performance of the Nasdaq 100 Index. So if the Nasdaq loses 1% of its value this fund will increase its value by approximately 2.5%.

UKPIX generates its results by taking a 200% inverse position of the daily performance of the Nikkei 225 Stock Average, allowing investors to bet against the Japanese market.

NAME

TICKER

TSCR Grade

1 Month Return

3 Month Return

OBJECTIVE

Direxion Nasdaq 100 Bear 2.5X Inv

DXQSX

U

-8.29

38.63

Growth - Domestic

Profunds-Ultra Short Japan Inv

UKPIX

U

5.97

34.01

Non-US Equity

Rydex Dyn-Inv OTC 2x Strategy A

RYVTX

E-

-6.00

31.66

Aggressive Growth

ProFunds-Ultra Short OTC Fund Inv

USPIX

E-

-6.02

31.48

Growth - Domestic

Direxion S&P 500 Bear 2.5X Inv

DXSSX

U

-1.46

22.96

Growth - Domestic

Leuthold Grizzly Short Fund

GRZZX

C-

4.76

19.98

Small Cap

Direxion Small Cp Bear 2.5X

DXRSX

E-

-5.26

19.98

Small Cap

Rydex Dyn-Inv S&P 500 2x Strategy A

RYTMX

D

0.11

19.96

Aggressive Growth

ProFunds-Ultra Bear Fund Inv

URPIX

D-

0.00

19.94

Growth - Domestic

Rydex Dyn-Inv Rusl 2000 2x Strtgy A

RYIUX

U

-3.47

17.89

Small Cap

Sam Patel, CFA, is the manager of mutual fund research for the TheStreet.com Ratings.

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