Grizzly Short bets on stocks ripe for a trampling. By Elizabeth Leary, Contributing Editor September 3, 2008 Blood on the street spells food on the table for bear-market funds, which sell stocks short and use other techniques to profit from market declines. Bear funds are having a bang-up year, but Grizzly Short stands out from the pack. It's one of only two of the year's ten best bear funds that don't use leverage to juice returns (the other is Pimco StocksPlus TR Short Strategy).Good old-fashioned stock picking vaulted Grizzly ahead of its peers. The managers at Leuthold Weeden, the fund's sponsor, send stocks through computer models that consider everything from insider purchases to stock-price momentum. In the end, they wind up with about 80 names to sell short. Big losers in the first half of 2008 that turned out to be big winners for Grizzly Short included American International Group, Citigroup, Freddie Mac and Merrill Lynch. But co-manager Matt Paschke says the fund's allocation to financial stocks has recently been trimmed and is now 15% to 20%, down from 30% to 35% in March. "The easy money in financials has already been made," he says. Before you start drooling over Grizzly's recent success, note how much the fund loses on up days. On August 5, when the Dow industrials climbed 332 points, or 2.9%, the fund lost 3.2%. "In a bull market, the fund's goal is to do better than the inverse of the S&P 500," Paschke says. That's worth remembering, considering that stocks have returned 10% annualized over the long haul.