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Fund Times

Fund Times: Openings, Closings, & Manager Changes

Jensen, Hancock, Evergreen, Metropolitan West, Harbor, Fidelity, and others.

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Large-Growth Funds with Gains?
Large-growth funds have gone from bad to worse as a historic bear market has refused to relinquish its grip on Wall Street. The group lost 14% in 2000, 23% in 2001, and 29% in 2002 through September 19. Things have been so bad, and there have been so few refuges, that one large-growth fund manager recently remarked that she would be suspicious of any fund in the category that showed a gain over the last three years. "I'd really wonder what they were owning," she said.

We wondered, too, and took a look. Just two large-growth funds posted gains in each of the last two years and for 2002 year to date. There's no big secret to their success. They were shorting Nasdaq stocks, or selling borrowed shares with the intent of buying them back at a lower price and pocketing the difference. Potomac OTC/Short  (POTSX), which was up 19% in 2000, 7% in 2001, and nearly 58% through September 19 of this year, makes a permanent bet that the Nasdaq Composite index is going to decline. Rydex Arktos  (RYAIX), which gained 24% in 2000, 15% in 2001, and almost 61% through September 19 of this year, sells the Nasdaq 100 short. The Nasdaq has fallen about 25% on an annualized basis over the last three years while Potomac OTC/Short and Rydex Arktos have gained nearly 11% and 16%, respectively.

Dan Culloton does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.