Why has the Betashares Australian Strong Bear Fund (BBOZ) leapt 15% in a month?

Bear funds are designed to gain when markets fall, although they'll lose value when markets rise.

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Key points

  • Betashares BBOZ has leapt higher on a falling ASX 200
  • The fund is designed to gain 2% to 2.75% for every 1% decline in the ASX
  • Equities have come under pressure as investors eye a series of interest rate hikes

The Betashares Australian Equities Strong Bear Hedge Fund (ASX: BBOZ) has had a great month.

On 11 April, shares in BBOZ closed at $3.81. At the time of writing, the Bear Hedge Fund is trading for $4.38, up 15% in a month.

With so many stocks heading the other way these past four weeks, why is the ASX-listed BBOZ putting in such a good show?

Why BBOZ is making hay this past month

BBOZ is trouncing the market today precisely because that's what the hedge fund is designed to do in times of ASX selloffs.

According to Betashares' website:

BBOZ seeks to generate magnified returns that are negatively correlated to the returns of the Australian share market. The Fund expects to generate a magnified positive return when the S&P/ASX 200 Accumulation Index falls (and a magnified negative return when the index rises).

BBOZ is designed to gain 2% to 2.75% for every 1% decline in the ASX 200 on any given day. When the ASX rises, the Bear Fund will lose value.

Which gives us some good insight into why the fund has been doing so well.

Since this time last month, the S&P/ASX 200 Index (ASX: XJO) is down 6.2%, having dropped another 1.56% in intraday trading today. Which puts the 15% monthly gain for BBOZ right in line with the 2% to 2.75% negative correlation Betashares aims for.

Why has the ASX 200 come under pressure?

After a strong year of gains in 2021, a year that saw BBOZ fall 32.8%, the ASX 200 has come under pressure in 2022 on several fronts.

First, Russia's invasion of Ukraine is roiling geopolitical tensions and sending energy prices rocketing.

Second, investor concerns also include China's COVID-zero policies seeing the country initiate lengthy, intensive lockdowns that could dim the economic growth outlook for the world's second-largest economy.

And then there's the fast-rising inflation in the developed world and resulting interest rate hikes on the horizon.

While those factors have dragged on the overall performance of ASX shares, Betashares BBOZ has marched higher.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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