General market volatility measured by the Volatility Index or VIX seems subdued … and you can buy the current lack of volatility through an exchange-traded fund called ProShares Short VIX Short-Term Futures (NYSEARCA:SVXY).
The SVXY ETF is up 40% for the year, and since late June it’s up over 50%.
As ProShares notes, SVXY is not an investment company, but a vehicle that benefits from the inverse of the S&P 500 Short Term Futures Index.
When volatility goes down, SVXY goes up. You can actually buy peace and quiet and make a profit to boot. Be aware, however, that as with any other investment, there are analysts taking the other side, and expecting volatility to rise this month.
The Bears and the Bulls
Goldman Sachs Group Inc (NYSE:GS) wants you to ring the cash register and sell, sell, sell, and Schaeffer senior vice president of research Todd Salamone is expecting a pullback.
But then there’s TD Asset Management, which manages $230 billion, and recently switched its position to “maximum overweight” in gold which is already up 23% so far this year. The Sovereign Investor is pounding the table for Dow 50,000 and CFA Artyom Zakaryan sees market sentiment indicating huge gains ahead.
As for my own view: Investors should ask another question before making any sudden move. That is, what else are you going to buy?
I always advise holding some cash for opportunities, but if you’re less than 90% invested, you’re bound to miss something and your cash is losing money.
Are you going to buy bonds when interest rates are negative? Are you going to buy commodities when oil is closer to $40 than $50?
Still Bargains
There remain whole sectors of the market — autos, airlines, banks — that are trading at huge discounts to the general market. These are big companies with real dividends and Price/Earnings multiples in the low teens and even less. General Motors Company (NYSE:GM) is selling at four times earnings.
While Big Techs like Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) and Amazon.com Inc. (NASDAQ:AMZN) are selling at hefty premiums, recent quarterly results have justified those valuations, and the stocks are even higher than they were a few weeks ago. If you’re looking for a bargain in tech Apple Inc. (NASDAQ:AAPL), up $8/share since announcing earnings last week, still has a price-earnings ratio of 12.2.
The New Hot Sectors
A major advance in the market is going to need broader participation, and there are two newly-hot sectors you can play, biotech and real estate.
The SPDR S&P Biotech (ETF) (NYSEARCA:XBI) suddenly caught fire July 20, and is up 13% in just a few weeks. There are some components in that index that are especially hot, like Ionis Pharmaceuticals Inc (NASDAQ:IONS), which has a new drug to treat spinal muscular atrophy, one of the leading cause of infant death. Biogen Inc (NASDAQ:BIIB), its partner in that effort, is also up big, investors having forgotten the quick exit of its CEO on July 21.
Another interesting place to play, especially if you like income, would be real estate, which is seeing new strength. Mall owner Simon Property Group Inc. (NYSE:SPG) is up 5% in the last month, and near its yearly high.
Outlet mall operator Tanger Factory Outlet Centers Inc. (NYSE:SKT) is up 4% in the last month, and is also near its yearly high. You won’t be a loser on either of these stocks, as both pay dividends in the 3% range. The Dow Jones Equity All REIT Return Index is up nearly 19% for the year so far as the hunt for yield heats up.
It’s easy to be frightened. But volatility can work in two directions, down and up. Markets can’t rise when everyone is bullish, they only rise when there are potential buyers on the sidelines, missing out, wrapped in fear.
I’m sitting tight in equities until someone tells me what else might work. Meanwhile, here is an interesting idea worth considering if risk is a game you really like.
What the move in SVXY tells us is that traders are expecting a quiet August. But not all traders are expecting that. I’m not.
Dana Blankenhorn is a financial journalist who dabbles in fiction, his latest being The Reluctant Detective Travels in Time. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. At the time of publication he owned shares in AAPL, GOOGL and AMZN.
