The fund allows investors to potentially profit in two ways. If the stock market is declining, investors gain from the short positions. If the stock market is rising, investors can offset losses from the short positions through the fixed-income portfolio. The Pimco fund returned 49% in 2008 when the S&P 500 fell 38.5%. The fund declined 14% in 2009 and 8.5% in 2010.

'Difficult on Bears'

"In effect, it's two funds in one," said Rick Lake, co- chairman of Greenwich, Conn.-based Lake Partners Inc., which advises institutions on $3.5 billion in assets. "The outperformance is due to the recent strong performance of bond funds in general and Pimco bond funds in particular."

Gross was not available for comment, said Mark Porterfield, a spokesman for Pimco.

Unprecedented efforts by the Federal Reserve to stimulate the economy have helped the Standard & Poor's 500 Index double from its March 2009 low. That hurt funds including those founded by David Tice and Charles Minter, who are known for their persistently gloomy views on the market.

"Prices do diverge from fundamentals if you have so much government intervention," Douglas Noland, who has worked with Tice for more than a decade, said in an telephone interview. "It's very difficult on us bears. It's frustrating."

Noland and colleague Ryan Bend run the $1.3 billion Federated Prudent Bear Fund, which was founded by Tice and profited from the managers' conviction in late 2007 that stocks would fall 50%. The fund, owned by Pittsburgh-based Federated Investors Inc., rose 27% the following year. It has fallen 44% since March 9, 2009.

Grizzly Fund

The top-performing actively managed bear mutual fund during 2008 was Steven Leuthold's $90 million Grizzly Short Fund, which returned 74%. Even with that gain, the fund has declined at an annual rate of 9% over the past five years.

Funds that magnify the inverse return of a specific index have been hurt particularly bad. The Direxion Monthly Emerging Markets Bear 2x Fund, which aims to provide investors with twice the inverse return of an emerging markets index, is down 51% over five years, the worst performer in the category.

"Leveraged funds can really amplify losses," Morningstar's Papagiannis said.