Howdy, Stranger!

It looks like you're new here. If you want to get involved, click one of these buttons!

In this Discussion

Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

    Support MFO

  • Donate through PayPal

7 bear market funds

Bear market mutual funds can help investors survive and thrive the next time markets swoon.


  • This looks like a sure way to lose money. Unless the writer is selling reliable crystal balls.
  • Crystal balls sold separately.

    I don't get it, but a lot of people think they need 'alternative' funds for diversification when, as @Ted pointed out in another thread, you are better off in the long run with just a plain vanilla balanced fund. Oh well, just my 2-cents.
  • @MikeM: I getting ready to link an interview with Brad Lamensdorf, Manager, Ranger Equity Bear ETF (HDGE) that has lost money for its investors over the last five year. Brad as a bear market manager is going to rationalize any little tidbit he can find to entice you to own his fund. Another bear fund the Grizzly Short Fund (GGRZX) has lost money for its investors for the last fifteen years
  • beebee
    edited August 2018
    One way to address bear market risk is to first study the history of bear markets:

    Here's a graphic:
    source Image:
    History of U.S. Bear & Bull Markets
    Here's the narrative:

    There are two term known as "Max Draw Down" and "Recovery Time" which loosely means the number of months it takes to complete the bear cycle from the start of the bear (when the bear arrives in camp) and until he leaves. For example, if you owned VWINX over the last 33 years (1985-2018) , this fund experienced a Max Draw Down of (-18.82%) starting in Nov of 2007. This fund bottomed in March 2009 and the began its recovery which continued until September 2009. Therefore, its "Recovery Time" took a little less than 2 years (November 2007- September 2009). This information is readily available on Portfolio Visualizer's website. Here's a snapshot of the chart with the Max Draw Down and Recovery Time highlighted.


    For a long term investors these draw-downs are opportunities to buy less expensive shares. For retirees who are in the withdrawal phase these draw-downs create "sequence of return" risk especially if a retiree is locking in these losses with withdrawals (selling low).

    There are many ways to deal with sequence of return risk. I do not think owning a bear market fund is one of them.

    What might be?

    1. Withdrawing from a "cash like" funding source - In the scenario above one would need two years of income (2 years of withdrawals) since VWINX needed almost 2 years to recover. A retiree would instead withdraw from the cash-like source until VWINX recovered. Today these cash like accounts can earn almost 2% which helps offset inflation.

    2. Use your home's equity - either in the form of a HELOC or a Reverse Mortgage- as a temporary funding source for income. Both would need to be set up in advance. Remember HELOCs were being called in by banks during the very time that VWINX was floundering. A Reverse Mortgage has set up expenses associated with it, but it can not be called in by the bank. The younger you set it up (age 62) the longer the "equity value" grows independent of the "market value".
  • Discussion on Reverse mortgages as a way to handle "seqeunce of return risk" in retirement:
    Reverse Mortgages
  • A good read on the topic of recessions, bear markets and you:
  • @bee: There is no such thing as a free lunch when it comes to reverse mortgages. There is a downside:

    Reverse Mortgage Drawbacks:


    Lenders charge a number of fees to close on and maintain a reverse mortgage. While you don’t have to pay the majority of fees until you leave your home, you could receive less money overall than if you had sold the home outright.

    Interest grows over time.

    Since a reverse mortgage is a loan, the lender will charge interest on the amount you take out. While you don’t have to pay interest as long as you’re living in the property, this reduces the amount you or your heirs would receive for selling your home.

    No annual tax deduction for interest.

    The interest on a reverse mortgage is not tax-deductible on your annual tax return. Since you do not make payments on the interest while living in your home, it cannot be deducted every year but will instead accumulate to the mortgage balance. The interest will only be deductible when the reverse mortgage loan is paid off, either partially or in full.

    Loan must be repaid if you move out.

    If you live somewhere besides your home, you will eventually need to repay your reverse mortgage. Your loan is due if you live somewhere else for nonmedical reasons for a majority of the year. Additionally, if you move out for medical reasons, such as to live in an assisted living facility, and are out of your home for more than 12 consecutive months, your loan must be repaid. This can force you to pay off the reverse mortgage earlier than expected.

    Additional Housing Costs

    While you don’t have to make loan payments on a reverse mortgage, you still need to cover other housing costs including taxes, maintenance and housing association dues. If you fail to make these payments, the lender could foreclose on your home.

    However, Bell notes that this concern is not unique to reverse mortgages. “If you don’t pay your property taxes, you could eventually lose your home in any situation.”

    Smaller Inheritance

    A reverse mortgage could reduce the inheritance for your heirs, as it reduces the equity in your home. If your heirs sell your home after your death, proceeds from the sale of the home will be used to pay off the loan, and then they will receive any remaining proceeds. If they want to keep your property, they will need to pay off the loan first.

    Source: U.S. News & World Report
  • beebee
    edited August 2018
    @Ted...obviously you didn't watch the video. All of these issues are discussed in detail. The main point is that a reverse mortgage is a financial tool that might help retirees avoid sequence of return risk. This strategy increases final Inheritance (total net worth). One would open the reverse mortgage at 62 (pay the set up fees), have a small principal balance (As little as $50) and let the line of credit grow. It is the line of credit (available in a reverse mortgage) that one would want to tap (and then later pay off the borrowed amount) if markets dropped for a period of time.

    Just one tool available to add buffer assets to your portfolio.
  • TedTed
    edited August 2018
    Me bad ! I don't have time for a 1 hour 15 minute presentation.
  • edited August 2018
    Hi Folks - I’m willing to allocate a small amount to alternative funds in the current exuberant market (currently 10%). And an even smaller amount to a gold fund (1-2%), which is another form of alternative investment. But please understand (1) I’m deep into the retirement / draw-down years and (2) I probably have accumulated enough $$ to last my remaining lifetime.

    What some don’t grasp is that at a very advanced age it takes just 1 devastating year to wipe out 25-50% of one’s lifetime savings. While (as many like to point out) the odds of such an event are relatively small (you odds-makers can calculate the likelihood), if it happens to someone 75 or older it’s unlikely they’ll recover that sum in their lifetime. So you need to understand that some old farts here are being extra cautious in the prevailing climate. Going to all-cash doesn’t sound like any fun. And I think one can still pull 2, 3 or even 4% a year better than a money market or CD over shorter periods - even conservatively positioned. As I’ve often pointed out, those under 60 (and @Ted still thinks he is) probably should be investing in good plain vanilla low-fee growth funds.

    The funds in JohnN’s post appear to be bear market funds. That’s 1 type of alternative - but by no means the entire domain. And a bear-fund to me is suicidal unless you really can foresee the future. Hussman is the best advertisement for an alternative fund which attempted to foresee the future and fell into the bear trap. HSGFX has sported dismal returns since inception. John H’s crystal ball clearly was defective. Maybe Amazon will take it back.
  • @Hank: Bull market don't turn on a dime, when their is sufficient evidence that its time to switch gears, believe me I'll gear down. In my opinion, I see no need to hold alternative funds in a bull market, with no end in the near future, in anticipation of Armageddon happening. Why would you keep money in dead assets when it could be used to enhance your wealth.
  • @hank
    According to data from various sources, I'm considered a senior citizen, too. But, I was also offered a membership to AARP when I was age 35. :)
    As to the "cash" as a place to run to in the event of an equity melt. Well, if one is able to pull the evacuate equity soon enough, and choose not to go to U.S. bonds or notes, our current default core cash at Fidelity yields, 1.6%.
    Not too bad when seeking protection of assets from the "nasties", eh?
  • @catch22: you said, "protection of assets from the "nasties". We've gone almost nine and a half years without the nasties, and I for one am not going to look over my shoulder for them because their no where in sight !

    P.S. I have 000,000 in MVRXX earning 1.83%
  • @Hank, what alternative funds are you invested in? Were they around in 2008-early 9 for the great recession so that they have a performance tract record during the worst of economic times? Just curious how they performed over that stretch compared to a conservative balanced fund. Again, just my opinion, but alternative funds offer nothing that a good equity/bond balanced fund can offer, including safe-guarding your down side risk in retirement. Compare your alternatives for risk-return to a couple pretty conservative balanced funds like GLRBX or BERIX. These 2 funds lost only 5.5 and 10.2% in 2008 respectively, while averaging returns over the last 10 years of close to 6 and 7%.

    Not trying to change your mind or comfort zone, just saying, in my opinion alternative is more a marketing gimmick than a useful portfolio add at any stage of life. Bear market funds being the worst choice of the group.
  • @MikeM: You make an excellent point, should things get ugly I would switch to more cash and VWENX.
  • edited August 2018
    MikeM said:

    @Hank, what alternative funds are you invested in? Were they around in 2008-early 9 for the great recession so that they have a performance tract record during the worst of economic times? Just curious how they performed over that stretch compared to a conservative balanced fund.

    Hi Mike - Fair enough.

    Here’s the answer to your question: QVOPX 3-4% of assets, TMSRX 6-7%

    QVOPX, lost 20% in 2008. In comparison, Price’s 40/60 balanced retirement fund lost 18%. What should be rememberd is that interest rates were probably higher back than, so bonds helped TRRIX more than they might in a similar crisis today. QVOPX (and Oppenheimer generally) really stunk up the joint during ‘07-‘09. They were overly-aggressive in many conservative offerings. Cleaned house afterward. Michelle Borre has been manager of QVOPX since 2011, and by everything I can read and research, she’s a solid manager who doesn’t take a lot of risk. I’m comfortable with a small sliver invested in the fund. (I’ve held class A shares there since the mid-90s.)

    TMSRX, is brand new. David has made a few comments re it in his commentaries. To wit, TRP’s literature bills it more as an alternative income fund. It’s best compared to RPSIX in my opinion. And that’s about where Price places it on their risk scale. RPSIX lost 9.4% in 2008. Obviously there are no figures from ‘08 for the new fund. FWIW, the two are about tied YTD - each having lost approximately 1% (but TMSRX has only been around since March).

    In no way am I recommending any of these mentioned funds to anyone else. It is in my opinion only a treacherous market in both bonds and equities. I’d say “Pick your own poison.” (But if you want to hear the bull case, there are a number of presenters on the board, among them @Ted.):)

    Out for the rest of the day. Hope I’ve addressed. your questions adequately,

  • @bee, I am not sure I will go the way of reverse mortgage in retirement. My wife joke about sell the house, move into out 10 year old trailer and live on the driveway of our kids house. We sure spent enough to put them through college and help them along on their career paths.
  • @Sven...I like the way you roll or should I say "park".
  • @bee, great stuff on max drawdown and recovery time. I'm a believer in having a cash bucket in retirement to ride out a recession. I've thought 3-4 years expenses would be good, but you are using actual data that suggests 2 years expenses in a cash bucket is likely sufficient. More real data that suggests bear market funds are not needed or even detrimental to a portfolio.

  • edited August 2018
    I'm thinking like some others that have expressed their thoughts that a good balanced fund over time will do just as well if not better than advertised bear market funds. I charted American Funds ABALX against a couple of them using BEARX & PSSAX and over a full market cycle of ten years it was the better performer. In fact over this ten year period the two bear market funds that I used actually had negative returns while ABALX was up better than an average of eight percent per year for the period. Being mostly a long term investor who at times trades around the edges this is important to me being able to keep positions for the long term.

    So, with the market being at all time highs with some saying a major pull back might be coming I'm staying with my hybrid funds and will not be moving into bear market funds. Should some ballast be needed in my portfolio during a market down draft I'll raise cash by reducing my exposure in some of my equity funds.
  • @Old_Skeet- We've held ABALX, acquired NL, just forever. No complaints at all.
  • edited August 2018
    catch22 said:

    As to the "cash" as a place to run to in the event of an equity melt. Well, if one is able to pull the evacuate equity soon enough, and choose not to go to U.S. bonds or notes, our current default core cash at Fidelity yields, 1.6%.


    Love the wry humor here. Pulling the “evacuate (cord)” fast enough and running to cash would work - I suppose. However, should Mr. “Know All” post the evacuate alarm on this forum (as I believe he intends), than wouldn’t everyone who reads the financial internet be pulling their evacuate cords all at the same time? And if that happened, the result might well resemble a bunch of bumper-cars all colliding mid-air. I shudder to think how that might turn out.

    Also, some of us aging boomers suffer from arthritis and/or other incapacitations. The way my right shoulder feels some days, I fear I’d be among the last to yank that cord.
  • "some of us aging boomers suffer from arthritis and/or other incapacitation."

    @hank- You too, h'mmm?
  • bone surgery 12 is up for me in october

    (ain't complaining, in other centuries I'd be cast aside in a ditch)
  • Reviving this thread!

    Fund BEARX in Cycle 4(200009 to 200710) had an APR of 11.5 vs some others as listed below
    - VBINX: 4.3
    - VGSTX: 7.3
    - VTSMX: 2.7

    I have no idea whether we are entering a period comparable to Cycle 4 but I do believe that we will enter a period of some softness and turbulence ahead with the known headwinds -- rates, war, high equity valuations, etc..

    I am considering a position in BEARX. Would love to hear other pro/con views on the same.
  • Seems to be a timing problem & cherry picking .
    Enjoying the ride, Derf
    P.S. @catch22
    What is your
    yield at Fido
    recently ?
  • Indeed, I am absolutely engaging in market timing and shopping for an "appropriate" bear fund as a hedge
  • APR is for loans, CAGR for funds.
Sign In or Register to comment.