A. There are a few options for cautious investors, we will discuss them one by one:
Managed Futures Mutual Funds
Most funds could only profit when the market moves in one direction - either up or down. However, there is a subset of the mutual fund family that could profit when market moves either way - managed futures mutual funds.
These funds trade futures contracts, which are promises to buy or sell a commodity, stock or other asset at a set price on a future date. Because managed futures funds can bet on prices rising or falling in any of the markets in which they deal, they have as much opportunity to make money in a down market as they do during good times.
The managed futures funds shone during the 2007–09 bear market, when the average such fund returned a cumulative 36%, according to Morningstar. Over the same period, Standard & Poor’s 500-stock index plunged 55%. However, they haven't done well recently.
If you believe the market will trend down, then managed futures mutual funds could be a good candidate to consider, although one thing to pay particular attention to - expense, as these funds tend to have high fees.
In our next blog post, we will discuss the second option: Funds Use Options.