One of the students in my securities law class recently wrote a series of blog postings discussing the pitfalls of investing in leveraged and inverse mutual funds and ETFs. To emphasize just how risky and unsuitable these types of investments can be, here is a list of some of the worst performing leveraged and inverse funds:
Year-to-Date (YTD) Returns as of 11/30/2010:
- ProFunds UltraShort Small-Cap (UCPIX) -42.54%
- Rydex Inverse Russell 2000 2x Strategy A (RYIUX) -40.99%
- Direxion Monthly Small Cap Bear (DXRSX) -40.54%
- ProFunds Ultra Short Mid-Cap (UIPIX) -39.37%
- Direxion Monthly NASDAQ 100 Bear 2x (DXQSX) -36.08%
The performance of these funds demonstrate how betting heavily against equities can be hazardous to your wealth. During this same period of time, equity markets were on the rise. For example, the S&P 500 index was up more than 5%.