Bear Funds or mutual funds that are intended to prosper during down markets have actually performed poorly over the past decade.
One would think that the past decade would have provided the perfect environment for these types of investment vehicles.
As reported in Bloomberg, though, a Pimco bear market mutual fund run by Bill Gross is the only fund of its type to beat U.S. stocks over the past five years. According the the Bloomberg article:
"Bear funds trailed equities over five and 10 years, and were the worst performers over both periods."
Bear funds are created by shorting individual securities or through the use of derivatives.
In contrast to long-only investing which presumably has the benefit of the upward market bias, a sustainable short strategy that actually performs well over time seems to require outstanding active management and security selection.
In the absense of such investing skill, bear funds tend to show brief periods of outstanding results (think 2009) that are ultimately marginalized over time by the market's upward trajectory.
Source: Bloomberg
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