Many investors apparently don’t believe in the 65 percent stock market rally over the past eight months, or at least want to hedge their bets.
Bear market mutual funds — those that short stocks — attracted a record $10 billion in the first 10 months of the year, according to research firm Morningstar. That’s more than double the previous peak, reached in 2006.
Fund “companies are capitalizing on the uncertainty in the market,” Nadia Papagiannis, a Morningstar analyst, told Bloomberg
“There’s also a mystique that comes with hedge fund investing.” Hedge funds are famous for shorting stocks.
The biggest investment inflow to a bear market fund went to Hussman Strategic Growth, which saw $1.7 billion through September.
Last year the fund registered a loss of only 9 percent, less than half the average of hedge funds.
Most mutual funds, of course, go long stocks. The alternative funds began more than 30 years ago. They are attractive to smaller investors, because you need a net worth of at least $1 million to invest in hedge funds.
One advantage of mutual funds over hedge funds is that you can liquidate mutual fund positions any day you choose, while hedge funds generally limit sales periods.
Some stock market bears expect huge declines in the market.
For example, David Tice, head of bearish strategy at Federated Investors, told Bloomberg that the Standard & Poor’s 500 Index is headed to 400.
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