Bear market funds appeal again

new york — Bearish stock investors are slowly coming out of hibernation, as money has begun to move into funds that aim to profit when markets dive.

US mutual funds that attempt to profit in falling markets attracted $413 million in new investments during the second quarter, the funds’ largest inflows since the height of 2013’s “Taper Tantrum” selloff, according to Thomson Reuters’ Lipper research unit.

On Thursday, the S&P 500 experienced its first one per centplus drop in 58 trading days, as the CBOE Volatility Index surged over 44 per cent, noted Bespoke Investment Group.

The selling pressure in stocks follows a frustrating year-to-date for bearish stock investors, given that the S&P was up 10.5 per cent since December 31 as of Wednesday’s close. As of Thursday’s close, it is up 8.9 per cent.

Markets last week were set in negative motion after the United States and North Korea exchanged threats. President Donald Trump said on Thursday that his previous promise of “fire and fury” in response to any threats from North Korea may have not gone far enough, vowing “trouble” for the country if its actions do not change.

Brad Lamensdorf, portfolio manager for AdvisorShares Ranger Equity Bear ETF, said he has seen demand for his fund partly driven by “people that feel like it’s time to hedge.”

“They’re pretty negative from a forward-looking view,” he said. The fund targets stocks with low earnings quality or potential accounting problems; it has attracted $20 million this year.

The demand for these funds comes after a long drought, and remains a mere drop in the bucket within the fund world. —