Kent Thune: You don’t have to be a market timer or expert technical trader to make money when stock prices take a dive. Instead you can simply buy bear market funds.
This is similar to the hedging strategy with funds we covered last week in the article, Top 3 Hedge Funds for Every Investor. The typical hedge fund may bet on falling prices by taking short positions in securities and it may also take long positions to benefit from rising valuations. In summary, hedge funds use leverage to hedge against market declines.
But this time, you are doing the hedging yourself with bear market mutual funds — you are the hedge fund manager of your own portfolio.
Bear market funds — which typically go short stocks, use options, or find other ways of betting against the market — can be a smart way of adding diversity to a portfolio when it appears that a bull market is nearing its end.
With regard to performance, there will be an inverse relationship with the performance of a broad market index. For example, if the S&P 500 Index fell 20% over the next 12 months, a well-managed bear market fund would rise roughly 20%.
3 Top Mutual Funds to Buy for a Major Market Correction
- Rydex Inverse S&P Strategy (RYURX): As the name suggests, RYURX seeks to achieve the opposite performance results of the S&P 500 Index, before fees and expenses. For example, over the past one month, the S&P 500 Index had a 1.34% decline, whereas RYURX has a positive 1.16% gain. In 2008, when the S&P 500 declined 37%, the Rydex Inverse S&P Strategy fund had a 40.94% gain. For added assurance to potential investors in RYURX, the lead manager, Michael P. Byrum, has been at the helm since 2001. For a bear market fund, RYURX also has a low expense ratio of 1.42% and the minimum initial purchase is only $2,500.
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