Some Tactics for the Second Half
By Tom Taulli, IPO Playbook
Until about a couple weeks ago, the markets in 2013 were a no-brainer. Just about everything did well.
But nothing lasts forever, especially when it comes the investment game.
In other words, it’s a good bet that the second half of this year will be tougher. First of all, the Federal Reserve appears to being taking a bit of a hawkish approach to monetary policy. Part of this is due to the improvement in the U.S. economy, as seen with the rebound in autos and real estate. But it also looks like the Fed is taking steps to reduce some of the excesses in the credit markets.
At the same time, China is tightening up too. And the impact has been substantial for emerging markets in Asia. Just look at the volatility in currencies and commodities.
So what should investors do? Well, here are a couple ideas to consider:
Shorting: If markets remain volatile, this approach should help bolster your portfolio. Keep in mind that shorting allows an investor to make a profit when a security falls in value.
No doubt, there are a variety of funds to help do this, such as the AdvisorShares Ranger Equity Bear ETF (HDGE). The co-managers — which include John Del Vecchio and Brad H. Lamensdorf — are veterans of short selling. Keep in mind that they recently published a book on the topic: What’s Behind the Numbers?: A Guide to Exposing Financial Chicanery and Avoiding Huge Losses in Your Portfolio.
As should be no surprise, the ETF has had a tough year, down about 10%. But with the recent selloff, the fund has been able to show gains. It is up about 4% over the past month.
Bonds: Be defensive. The bond market has been in the bull mode since 1982. Besides, the Fed has kept rates at artificially low levels since the financial crisis of 2008.
Thus, it is reasonable to see rates start to move upward. But this can be horrible for bond funds. Even some of the top operators have done poorly, such as Bill Gross’s Total Return Fund (BOND). It’s off about 5% since early May.
Now, this doesn’t mean you should just dump your bond funds. Instead, it is probably a good idea to focus on those that have short durations — say, under three years or so. This is the average time it takes for the portfolio to mature. This is important since a short-duration fund will get its money back quicker and can then redeploy the capital into higher-yielding securities.
One option to play this is the JPMorgan Limited Duration Bond Fund (ONUAX), which has weathered the bond route. In 2013, the return is 1.10%. The fund, which invests in government and high-grade corporate bonds, has a duration of 1.4 years.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.