Few in the fund industry would argue that performance makes selling a fund much easier, but executives selling bear market funds would disagree. Since the Nasdaq and S&P 500 began declining early last year, bear market funds have, for the most part, enjoyed improved performance, as they are designed to do in a downward market.

But that has not made it easier to sell the funds, according to Paul McEntire, portfolio manager, president and chairman of the Bearguard Fund. After launching the fund a little over a year ago, McEntire was forced to file a preliminary proxy late last month seeking to liquidate the Bearguard Fund because it could not generate substantial flows. The funds' adviser, Skye Investment Advisors, had capped the fund's expenses at 2.75 percent and 2.50 percent for institutional and investor share classes, respectively. But Skye was heavily subsidizing the fund. Operating expenses were actually 20.12 percent and 20.05 percent for investor and institutional share classes, respectively, according to the proxy.

Despite using a short selling strategy that allowed it to outperform the S&P 500 by 26 percent year to date as of Jan. 31, the fund just did not catch on with investors, said McEntire.

"We thought the unique nature of the fund would generate more interest than it did," he said. When the fund was introduced, Skye said it was the first short-only stock mutual fund. Although it received substantial publicity, it could not attract a sufficient level of assets, McEntire said.

"I still believe the product is a good one," McEntire said. "If we had to do it again, we would do it with a load or a larger fund-raising at the beginning." The fund was introduced with only $700,000 in assets, according to a company spokesperson.

But the Bearguard Fund is not alone in its struggles to attract assets. Despite the fact that both the S&P 500 and the Nasdaq declined in 2000, ten of 13 large bear market funds had net outflows in 2000 and together the funds had $699.3 million in net outflows, according to Financial Research Corporation of Boston.

"I guess I would have expected the cash flows to be stronger," said Scott Cooley, an analyst with Morningstar of Chicago. "One thing that might be the cause is the belief that technology stocks would rebound was so strong that I think people were a little slower to react than they might have been in past years. We just haven't seen the performance chasing that we would have expected in general, so I guess this would be part of that as well."

Part of the problem with selling bear market funds is that investors generally believe that markets go up over an extended period of time, not down, Cooley said. However, some advisors find bear market funds useful because they can be used as a way to minimize an investor's exposure to a certain index which provides tax efficiency without having to sell off holdings, he said.

One group of investors that favors the product are market timers who want to short the market. But, that can make it difficult to operate the funds. Firms like Rydex of Rockville, Md. and ProFunds of Bethesda, Md. offer bear market funds and "put out the welcome mat" for market timers, Cooley said.

Still, the product has not caught on with investors or advisors, he said.

"I think it's safe to say that this isn't a really hot business," Cooley said.

David W. Tice, manager of the Prudent Bear Fund and CEO and president of David W. Tice Associates of Dallas said it has been difficult to attract assets even though the Prudent Bear Fund's performance has been strong recently.

"It has been tough because our assets are below what they were two years ago and they are below what they were a year ago," he said. "It reflects the dramatic complacency that exists in the market and we are continuing to try to get mentioned. We don't have a huge ad budget, but we do advertise in some contrarian publications."

The performance of the Prudent Bear Fund generally runs opposite to that of the Nasdaq index. That index was down 53.7 percent in 2000 while the fund posted a 37.6 percent gain, according to David W. Tice Associates. However, the fund suffered $35.6 million in net outflows for the year, $31 million of which was lost in the fourth quarter, a quarter in which the Nasdaq dropped 32.7 percent.

Tice blames the fund's struggles to attract assets on lingering investor confidence in the economy.

"There's this [investor] complacency that thinks, Because the Fed is on our side, I don't want to buy a bear fund,'" he said. "And even some bears who have made or may have lost some money with us are saying, Well, I want to be in Prudent Bear eventually, but maybe not now.'"

The firm is trying to figure out how to market the fund's performance, Tice said.

"Maybe we ought to be spending hundreds of thousands of dollars getting on CNBC and trumpeting our performance," he said. "It's something that we are thinking about."

Bear market funds should be marketed based on their effectiveness as a hedging tools, not on performance, said David Steele, an executive vice president of marketing and product development for Rydex Funds of Rockville, Md.

"It's our job to increase peoples' awareness that this is a very effective tool," he said.

Still, two of Rydex's bear market funds took a beating in terms of cash flows last year. Its Arktos and Ursa funds recorded total net outflows in 2000 of $291 million.

"I think the best way to sum it up relative to cash flows is that these [investors] have made their moves already," he said. "At the end of last year, especially at the beginning of the fourth quarter, people were pretty much done positioning

themselves. That's our read on it. They implemented their strategies before the fourth quarter."

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