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Rekenthaler Report

This Fund Lost 94%, and Yet Could Have Been Useful

A bad gamble, but perhaps a good hedge.

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Drama Queens
For once, funds have been exciting!

The U.S. fund industry reached maturity a couple of decades back, and hasn’t done much of interest since then, aside from embarrassing itself with a market-timing scandal. To be sure, its CEOs have been fascinated; $2 trillion of net inflows will do much to catch an executive’s attention. But for Internet bloggers, seeking the strange and wonderful, the fund business has been no prize--until two weeks ago, when stock-market volatility hopped like a Calaveras frog, with the CBOE’s Volatility Index rising by 267% in one day. That unprecedented gain, combined with the invention of volatility-shorting funds (an exception to the general rule), caused what likely is the single greatest weekly loss in U.S. mutual fund history. (It certainly is the largest over the past 30 years; before that, weekly data is difficult to search.) The inappropriately named  LJM Preservation and Growth Fund (LJMIX) shed more than 80% of its value the week of Feb. 4.

John Rekenthaler does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.