Consider This Before Buying

Buying a mutual fund without studying its top holdings is like buying a car without first checking under the hood. From the outside, the fund could look great, with a strong track record and promising manager, but savvy Fools will always take a closer look at the fund's top stocks before investing, just to make sure they aren't buying a lemon.

This extra research can be a daunting process. It becomes impractical with funds that hold hundreds of stocks. Yet even so-called "focus" funds, with only a handful of stock holdings, still require you to carefully research 20 or 30 stocks. Few people have the time or knowledge to complete a task like that. That's where Motley Fool CAPS and its community of more than 110,000 investors can help.

Pray tell ...
Every week, we'll look at one of this year's hottest funds, and see what Main Street investors have to say about its top picks. We'll pay particularly close attention to funds that put a lot of weight in their top 10 holdings.

This week, we're taking a different tack by taking a closer look at a bear fund, Grizzly Short (GRZZX). According to Morningstar, it has been one of the year's top performers, raking in 54% returns. The fund charges a hefty 2.86% expense ratio and has an above-average minimum investment of $10,000. Two of the three managers, Steven Leuthold and Charles Zender, have been leading the fund since its inception in 2000.

Obviously, the past year has been good to Grizzly Short (a great name for a bear fund, by the way), but what about the future? Let's see what CAPS players think about some of the individual stocks in the fund.

Company	% of Assets	CAPS Rating (5 Max)
iShares Russell 2000 Index	(10.17%)	**
PowerShares QQQ (Nasdaq: QQQQ)	(2.33%)	***
Vertex Pharmaceuticals (Nasdaq: VRTX)	(2.13%)	****
UnionBanCal	(1.85%)	*
American International Group (NYSE: AIG)	(1.83%)	**
BrookfieldProperties	(1.83%)	*
Starwood Hotels & Resorts (NYSE: HOT)	(1.76%)	**
Synovus Financial (NYSE: SNV)	(1.71%)	**
MDC Holdings (NYSE: MDC)	(1.69%)	**
Fifth Third Bancorp (Nasdaq: FITB)	(1.66%)	*

Holdings as of March 30, from Morningstar.com and Motley Fool CAPS.

As you can see, the Grizzly Short fund is wagering about (27%) of its net assets on these top 10 picks. Fortunately, CAPS investors seem to think these short picks are pretty good: Three of them carry lowly one-star ratings, five received two, and just one, Vertex Pharmaceuticals, gets positive support from our community.

That's important, because in our first year of collecting CAPS data, we've seen that four- and five-star-rated CAPS stocks have tended to outperform the market, while one- and two-star stocks have underperformed. Based on that measure, at least, this fund is making some smart bets.

What do you think about these stocks -- or any stocks, for that matter? Make your voice heard among those of 110,000 other investors on Motley Fool CAPS. Just sign up today, and start rating your favorite stocks. You can even check out the holdings of your favorite funds to see how they stack up. The community has rated 5,500 stocks.