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Every dog may have its day, but the past month has belonged to the bears. And two fund families in particular --

Rydex Investments



-- have seen their inverse funds soar during the market's midsummer meltdown.

According to fund tracker Morningstar, bear market funds have led all other fund categories for the past month, returning 6.19%. The closest competitor -- as well as the only other fund category with a positive return over the period -- is utility funds at 0.73%.

Of course, one month does not a rally make; over the past 12 months the average bear is down 12.75%. Nevertheless, the market's midsummer swoon has sparked increased interest in bear funds, which allow investors to bet on a downward market without the unlimited risk involved in shorting individual stocks.

Leading the bear fund charge are ProFunds and Rydex, two fund families located just down the road from each other in Maryland. Both specialize in inverse index funds, which increase in value when the market declines and decrease in value when the market rises.

Rydex, however, is the larger of the two companies with $10 billion in assets under management, $2.1 billion of those in inverse equity funds. ProFunds spreads $6 billion across its funds with a little over $1 billion in bear funds.

Michael Sapir, CEO of Bethesda, Md.-based ProFunds, says the market's downturn, along with election, oil and terrorism uncertainties, has increased demand for his firm's eight inverse equity index funds.

Only three of those eight funds would be considered "traditional" because their returns represent the direct inverse of the index they track, or, in other words, a one-to-one ratio. ProFunds calls the rest "ultra" funds because they employ leverage techniques, which include shorting index futures contracts to double returns.

For instance, when the

S&P 500

goes down by 1% on a particular day, the


Bear ProFund -- which tracks that index -- should increase by 1%. The souped-up

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UltraBear ProFund, however, should increase by 2%. Conversely, when the S&P 500 goes up by 1%, the Bear ProFund should fall by 1% and the UltraBear ProFund by 2%.

Practically speaking, while the S&P 500 fell a dramatic 4.27% over the past four weeks, both the Bear ProFund and the UltraBear ProFund had positive returns of 4.54% and 9.18%, respectively. (Like any index fund, the funds cannot exactly match the returns of the index, even in reverse.)

And if you are wondering about the impact of leverage on a fund, just look at the top two rankings on the Morningstar list of leaders when it comes to four-week returns. The

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ProFunds UltraShort OTC Inverse fund and


Rydex Venture 100 fund top the chart with returns of 18.57% and 18.55%, respectively. Both are leveraged funds that inversely track the Nasdaq-100 index, which has been hit unusually hard.

But don't be blinded by those returns too quickly. Over the past year, those same two funds are side by side again, but this time at the very bottom of the table with losses of close to 24%.

"We are seeing steady flows into the inverse funds," says Stephen Sachs, director of trading for Rydex. "These funds exist because markets don't go up forever. And when they do go up, they don't go straight up."

Aside from allowing their investors to bet for or against the indices in differing magnitudes, Rydex and ProFunds also enable their shareholders to market-time their funds, the frequent trading practice that led to the mutual fund scandal last year. (In many of those cases, however, the problems centered on funds that granted market-timing privileges to certain shareholders even though the funds prospectuses specifically prohibited the practice.)

In the case of Rydex and ProFunds, neither fund family charges a redemption fee for shareholders to move in and out of their funds as frequently as they wish. But the privilege does not come cheap as the expense ratios for their leveraged, no-load funds tend to be above the Morningstar average in the 1.4%-1.75% range.

Morningstar analyst David Kathman warns untested investors to steer clear of the leveraged funds because of the high fees and perils of investing with leverage. Kathman says these funds "should only be used for very specific purposes by very experienced investors."

That said, it may be tough to stop the march toward these funds if they continue to offer double-digit returns while their traditional rivals remain mired in a summer slump.