April 15 (Bloomberg) -- Two market crashes in a decade haven’t helped bear-market mutual funds avoid the distinction of worst-performing strategy. The only exception: Bill Gross.
Gross, best-known for overseeing the world’s biggest bond mutual fund at Pacific Investment Management Co., also runs the top-ranked fund that bets on a decline in stocks. The $1.6 billion Pimco Stocksplus TR Short Strategy Fund has advanced 3 percent annually in the past five years, the only bear-market mutual fund to beat U.S. stocks over that period, according to Morningstar Inc. Bear funds trailed equities over five and 10 years, and were the worst performers over both periods.
Bear funds have failed to profit from two crashes in a decade, the second of which, from 2007 to 2009, erased $11 trillion in market value and left the Standard & Poor’s 500 Index below where it stood 11 years ago. [...]
U.S. mutual funds that short, or wager on a decline in stock markets, have on average tumbled at an annual rate of 10 percent over the 10 years through March, the most of 90 strategies tracked by Morningstar. They’ve fallen 13 percent over the past five years. The group includes 42 funds, with active as well as passive strategies, some of which attempt to amplify market gains or losses.
“Bear funds have had a really poor track record,” Nadia Papagiannis, an analyst at Morningstar, said in an interview. “One period of good performance isn’t good enough to make up for several years of poor performance.”
Gross was not available for comment, said Mark Porterfield, a spokesman for Pimco.
Unprecedented efforts by the Federal Reserve to stimulate the economy have helped the Standard & Poor’s 500 Index double from its March 2009 low. That hurt funds including those founded by David Tice and Charles Minter, who are known for their persistently gloomy views on the market.
Noland and colleague Ryan Bend run the $1.3 billion Federated Prudent Bear Fund, which was founded by Tice and profited from the managers’ conviction in late 2007 that stocks would fall 50 percent. The fund, owned by Pittsburgh-based Federated Investors Inc., rose 27 percent the following year. It has fallen 44 percent since March 9, 2009.
The top-performing actively managed bear mutual fund during 2008 was Steven Leuthold’s $90 million Grizzly Short Fund, which returned 74 percent. Even with that gain, the fund has declined at an annual rate of 9 percent over the past five years.
The Federated Prudent Bear Fund and the $97 million Comstock Capital Value Fund, the oldest bear-market mutual fund, use a combination of options, short sales and fixed-income securities that reflect their conviction that the U.S. stock market will decline.
Comstock Partners, which is owned by Mario Gabelli’s Rye, New York-based mutual-fund company Gamco Investors Inc., in 1985 opened a mutual fund that allowed managers to bet on rising as well as falling markets. [...]
The Comstock fund, managed by Minter and Martin Weiner, suffered when the managers doubted the stock market rally from 1995 to 2000. Their skepticism only paid off after the market crashed in 2001 and 2002, helping the fund advance 65 percent during those two years. In the four-year market recovery that started in 2003, the fund lost 51 percent.
Moves by then-Federal Reserve Chairman Alan Greenspan “created a cyclical bull market between 2003 and 2007,” Minter said in a telephone interview from Philadelphia. “We got slaughtered throughout that period,” Minter said.