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Bear Market Funds

Definition and Best Time to Use Them

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Definition: Bear-market funds are mutual fund portfolios built and designed to make money when the market is falling. To do this, bear market funds invest in short positions and derivatives, thus their returns generally move in the opposite direction of the benchmark index.

Therefore the best time to use bear market funds is near the end of a bull market or when the investor sees compelling evidence of a bear market. For example during the bear market of 2008, some bear market funds had returns of more than 37%, whereas the S&P 500 dropped in value by 37% -- a complete inverse return, or a 74% advantage over the broad market benchmarks.

Investors should use extreme caution with bear market funds because they employ pure market timing strategies.

Disclaimer: The information on this site is provided for discussion purposes only, and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell securities.

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