(Bloomberg News) Two market crashes in a decade haven't helped bear-market mutual funds avoid the distinction of worst-performing strategy. The only exception: Bill Gross.

Gross, best-known for overseeing the world's biggest bond mutual fund at Pacific Investment Management Co., also runs the top-ranked fund that bets on a decline in stocks. The $1.6 billion Pimco Stocksplus TR Short Strategy Fund has advanced 3% annually in the past five years, the only bear-market mutual fund to beat U.S. stocks over that period, according to Morningstar Inc. Bear funds trailed equities over five and 10 years, and were the worst performers over both periods.

"Few people are smart enough to tell where the market is going," Geoff Bobroff, an East Greenwich, R.I.-based consultant to money managers, said in an interview. "Bill Gross and his team have developed the right tool kit here."

Bear funds have failed to profit from two crashes in a decade, the second of which, from 2007 to 2009, erased $11 trillion in market value and left the Standard & Poor's 500 Index below where it stood 11 years ago. After surging a record 30% in 2008, the funds slumped 34% in 2009 and 24% the following year as the stock market rebounded, according to Morningstar, which is based in Chicago.

U.S. mutual funds that short, or wager on a decline in stock markets, have on average tumbled at an annual rate of 10% over the 10 years through March, the most of 90 strategies tracked by Morningstar. They've fallen 13% over the past five years. The group includes 42 funds, with active as well as passive strategies, some of which attempt to amplify market gains or losses.

'Poor Performance'

"Bear funds have had a really poor track record," Nadia Papagiannis, an analyst at Morningstar, said in an interview. "One period of good performance isn't good enough to make up for several years of poor performance."

The funds have been a niche strategy since the first were started in the mid-1980s. They have about $4.8 billion in assets, accounting for less than 0.1% of the $8.4 trillion in stock and bond assets, Morningstar data show. Funds that invest in large-company stocks, the most popular, have about $2.4 trillion in assets.

Bear funds have attracted money after the recent market crashes, with investors pouring $4.7 billion into the strategy in 2009 and 2010. Assets in bear mutual funds peaked at $5.5 billion as of Dec. 31.

Lifting Returns

The funds can bet against the stock market by short-selling individual stocks or by using derivatives to short indexes such as the S&P 500. Shorting involves selling borrowed securities with the expectation that their value will fall and they can be bought back cheaper at a later time.

Gross's fund, started in 2003 to provide "inverse exposure" to the market, uses derivatives to bet against the stock market, and may use borrowed money and fixed-income securities to lift returns, according to information posted on the website of Newport Beach, California-based Pimco.