Nervous about the outlook for equities next year? If you think the S&P 500 is overpriced, here are five places to park your cash in 2011.
With all the recent talk about a bubble in bonds, can fixed-income still be a safe haven if stocks crash? The quick answer is yes, if you pick the right place to invest. One of the best places to be in recent years has been Templeton's Global Bond fund, which is led by Michael Hasenstab. Since he took the helm in 2001, Hasenstab has steered the bond fund to 12% annualized returns, according to Morningstar, far outpacing the benchmarks.
He's done it largely by avoiding convention. Hasenstab doesn't hold U.S. or
He's done it largely by avoiding convention. Hasenstab doesn't hold U.S. or
Japanese government debt. Instead, he likes the bonds of countries with
low-debt levels and solid growth prospects, such as South Korea and Australia.
Even as the fund has attracted more than $18 billion of new money this year,
Morningstar analyst Miriam Sjoblom thinks it can keep succeeding. "This Analyst
Pick shows no signs of slowing," Sjoblom wrote in her most recent report.
Owning a bear fund can be a dangerous pursuit: while your manager shorts stocks and waits for a crash, the market may rise enough to make you quit while you're down. But with Federated's Prudent Bear Fund, at least you know you should earn a solid return while you wait: it's returned an average 4.2% a year over the last decade, including a 27% return in 2008.
Manager Doug Noland calls the fund a core defensive position for any market cycle, and uses short-selling as well as investments in
Manager Doug Noland calls the fund a core defensive position for any market cycle, and uses short-selling as well as investments in
gold and precious metals to protect against what he sees as a long downward cycle in
U.S. stocks. As of September, Noland had loaded the fund with short positions in
information technology, healthcare, and consumer discretionary stocks.
Even if you think stocks are headed downward, you probably still want to own some--the ones that should hold up even if the market craters. The influential money manager Jeremy Grantham has been advocating this for a while. His money management firm, GMO in Boston, creates reliable return forecasts and right now assumes that large cap U.S. stocks will return a paltry 1.2% annually over the next seven years.
By contrast, so-called high-quality stocks will return 4.7% over the same period. Grantham
By contrast, so-called high-quality stocks will return 4.7% over the same period. Grantham
hardly ever recommends individual stocks, but a peak into GMO's Quality stock mutual fund
offers some suggestions (alas, the fund is only for institutional investors). Among the top
holdings as of November: Microsoft, Oracle, Johnson & Johnson, Wal-Mart Stores and
Coca-Cola. Quality stocks indeed.
A downturn in stocks almost certainly means volatility -- that seesawing action that makes cable pundits shriek and individual investors worry. Why not try o profit from it? One easy way to play volatility is to buy exchange-traded notes (ETNs) that track the "fear gauge" known as the VIX. They rise in value when investors worry that the stock market will fall.
As Fortune wrote back in June, one popular ETN is the iPath S&P 500 VIX short-term futures ETN. It follows the VIX and rises when options traders buy insurance to protect against a falling market. The ETN is not for everyone: it fell more than 65% this year before
As Fortune wrote back in June, one popular ETN is the iPath S&P 500 VIX short-term futures ETN. It follows the VIX and rises when options traders buy insurance to protect against a falling market. The ETN is not for everyone: it fell more than 65% this year before
spiking in November. But if you think stocks are ready to fall, this is a way to juice your bet.
A stock crash could spell trouble for high-flyers like Netflix. The DVD-rental company's shares are up 220% in the past year and six-fold since the start of 2009. It's hard to argue against its success: Netflix outsmarted nearly everyone in the recession, adding millions of customers along the way.
But if you're betting on crash, shorting Netflix is a good place to start. As hedge fund manager Whitney Tilson, who is short Netflix, recently wrote on the blog Seeking Alpha, "By any measure, Netflix's valuation is extremely rich." The stock currently trades for about 70 times trailing one-year earnings, and 49 times
But if you're betting on crash, shorting Netflix is a good place to start. As hedge fund manager Whitney Tilson, who is short Netflix, recently wrote on the blog Seeking Alpha, "By any measure, Netflix's valuation is extremely rich." The stock currently trades for about 70 times trailing one-year earnings, and 49 times
analysts' estimates for next year's earnings. The S&P 500, by comparison, trades for
14 times next year's earnings. "In short," Tilson writes,
"the stock is priced for perfection,
and any misstep would likely trigger a huge selloff."
Even without a misstep, any stock priced for perfection in a falling market is bound to fall
Even without a misstep, any stock priced for perfection in a falling market is bound to fall
even harder.
Source:www.cnn.com
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