This Crash Protection Doesn't Pay

Investors looking to protect themselves from stock market volatility by investing in a bear market mutual fund may want to reconsider. Bear market funds—which profit when stocks decline—have benefitted from two crashes in a decade. The second of those, from 2007 to 2009, erased $11 trillion in market value and left the Standard & Poor's 500-stock index below where it stood 11 years ago. Even so, bear market funds have been the worst performers among the 90 types of funds tracked by research firm Morningstar over the past 10 years, losing an average of 10 percent annually through Mar. 31. "Bear funds have had a really poor track record," says Nadia Papagiannis, an analyst at Morningstar. "One period of good performance isn't good enough to make up for several years of poor performance."

Bear funds have been a niche strategy since the first were launched in the mid-1980s. They attracted money after the recent market turmoil, with investors pouring a net $4.7 billion into them in 2009 and 2010. Assets in the 42 funds in the category peaked at $5.5 billion at the end of 2010 and today account for less than 0.1 percent of the $8.4 trillion in stock and bond assets, Morningstar data show.