Of the short funds that actively hedge individual stocks, the Leuthold Grizzly Short Fund (Stock Quote: GRZZX) is one of the category leaders. In the second quarter of this year the fund gained 8%, versus a nearly 3% loss in the S&P 500. The fund bets against financials, housing and tech names. The Prudent Bear Fund (Stock Quote: BEARX) also shorts individual stocks, in addition to possibly implementing options and futures contracts.  

Cutoff Shorts
Limit your exposure to short funds to no more than 10%, experts say. While they offer a hedge against the market, critics say bear funds can be considerably dicey because investors need to be aggressive and time the market to make money. "You really have to make two decisions: When do I go short in the market, and when do I take my short positions off?" says Adam Bold, founder and CIO of the Mutual Fund Store. "The reality is that most people don't realize that by the time the market's going down, it is likely closer to a bottom."

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