Proper evaluation of investment vehicles typically begins with their long-term (10, 15, or 20 years) performance history. Alas, bull and bear mutual funds as a group are much too young for such a thorough assessment. Some of the most recent arrivals, ProFunds' SOPIX for example, only appeared during 2002. The reason they deserve our attention and interest is that they offer a way to approximate short and margin strategies in retirement plans. The burning question on everyone's lips is how well do they really perform as compared to the corresponding index and ETF?

With the very limited amount of historical data available, we have done the research, and reveal all the facts. Not to overly confuse the subject of this article with why bull and bear mutual funds do not always accurately track their index, we refer to the November 28, 2003 FAQ of the Week. The chart below compares our favorite "benchmark" for the Nasdaq 100, the QQQQ Exchange Traded Fund, with funds from the ProFunds and Rydex families, in Strategy 3: Long and Short, and Strategy 4: Long and Short with Margin, respectively.

All the data is here for you to analyze, but our highlights would include the following:

• The performance records of corresponding ProFunds and Rydex funds are very well matched
• Short term, during the trendless markets of 2004, the bull/bear funds got knocked for losses while the ETF managed small gains
• Longer term - since June 2001 - bull/bear funds have provided much better performance than either Buy and Hold or Long Only strategies
• The shorting and margining of the ETF outperformed the corresponding mutual funds, but the funds performed more than satisfactorily

In conclusion, while short-term performance can be erratic at times and not always an absolute match for the equivalent ETF, especially during trendless markets, the short history of bull and bear funds seems to indicate that they offer good vehicles to improve performance of otherwise Long Only-bound retirement accounts.

For some not fully understood reasons, the four market quadrants of Trend Timing (they were initially introduced in the December 19, 2003 Trend Timing School article) have started gathering quite a following, and we frequently receive questions about them. They are rather mysterious after all, and persistent rumors of a quadrant cult has us on the alert!

We point out any quadrant changes when they happen in the Weekly Market Updates, as we last did on October 29, 2004. We do not want to confuse the "Current Signal" page with non-actionable quadrant information, which leads many to ask us which one we are in. Since we know what the signal is, the only information missing to determine which quadrant we are in is the relative position of the Nasdaq Composite Index 10-day and 200-day exponential moving averages (EMAs) to tell a bull from a bear market. The best place to get such information on the Internet, is StockCharts.com (we recommend you add this link to your browser's favorites for future reference). As the chart below clearly shows, the red and blue EMA lines and figures can readily be checked. When, as right now (12/10/2004), the faster 10-day curve is far above the red 200-day curve, we are clearly in a bull market for a Quadrant 1 Bull/Buy.

Warm wishes and until next week.

The TimingCube Staff