More Useless Trash From the Financial Media (Part 2)

Continuing from Part 1

Contrary to the claim that Federated’s Prudent Bear Fund holds more short than long stock positions, if you check the current top holdings, you won't see a single short position. 

Upon closer examination, you will note that nine of the top ten holdings consist of precious metals mining stocks; so much for diversification. BUT, the total percent of these nine positions comes to less than 3% of the portfolio.

What this means is that the fund holds potentially hundreds of different securities (do the math). Folks, this is what is known as over-diversification; a method used by fund managers who simply have no idea where to turn. I discuss this in the appendices of The Wall Street Investment Bible because I feel it’s such an elementary concept that I did not want to waste space in the main body of the book.

What about the fund's performance? 

Well, first, consider that the fund began in 1996, during the Nasdaq bubble. Therefore, because it is a bear fund you would expect it to have performed very well since that time since the U.S. stock market has experienced the two largest blow-ups in history.

However, if you check the 3-, 5-, and 10-year/max performance, you will see that after fees, the fund didn't even beat the S&P 500.

Furthermore, when you consider that the fund has been structured to take advantage of market timing and can hold a huge percentage of cash (thus avoiding market collapses), the fund's performance is much more miserable. 

Below I have shown the price chart of the fund over different periods so you can get an idea just how pathetic the performance has been.

 

Would you want to own this fund?

Remember, each year you are getting over 3% (perhaps over 4%) sucked out of your assets in total fees.

These fees compound over the years, meaning that the performance is much worse.

Now I’ve shown the same price charts versus the S&P 500 Index. Once again, the performance of this fund is BEFORE fees.