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Four Mutual Fund Bear Market Horror Stories

What went wrong at these hard-hit funds?

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Ouch. We are flirting with bear market territory as the twin shocks of skyrocketing oil and a credit crunch ripple through the economy and the markets. As is usually the case in market corrections, it isn't a matter of everyone taking two steps back. You have pockets of pain and pockets of serenity. Most bond funds are only down a hair for the year to date, yet you can find some that have been absolutely cold-cocked.

A while back I made the point that many investors had made the very flawed assumption that value funds hold up better in bear markets. That's not really the case. It just happened to work that way last time. In market history, though, value is just as likely to get tagged as growth, though it does at least have less price risk. That's particularly true when it coincides with a recession, which hurts economically sensitive stocks favored by value managers. Another way of looking at it is that most bear markets are caused by crises in an industry or two and each industry gets its turn to get clobbered, therefore each investing style will have its bad moments.

The last bear market pummeled massively over-hyped tech and Internet names, and this one is hitting financials hardest and anything vulnerable to rising oil prices second.

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Russel Kinnel does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.