Super Bowl 50 is a championship football game that features the Carolina Panthers and the Denver Broncos, but in the world of capital markets it can also be framed as a battle between the bulls and the bears. And the outcome of this game may predict which are the best funds to hold for the remainder of 2016.
Investors can be just as superstitious and speculative, if not more so, than football fans. Therefore it’s no coincidence that the so-called Super Bowl Indicator gets plenty of press in the financial media this time of year.
A primary reason for this attention is that the indicator has predicted the direction of stocks with over 80 percent accuracy.
Although the Super Bowl turns 50 in 2016, the track record of the Super Bowl Indicator goes back nearly 90 years. Here’s how it works: If a team from the National Football Conference (NFC) wins, it’s bullish for stocks. But if a team from the American Football Conference (AFC) wins, it’s bearish.
So Super Bowl 50, as it is played for the direction of the stock market, can be considered a battle of the Carolina bulls vs. the Denver bears.
To play your portfolio regardless of which way the game goes, here are the best funds to invest for the outcome.
Best Funds for the Super Bowl Bulls
If you’re bullish on stocks and the Super Bowl Indicator favors you, which means Carolina wins, you’ll want to position yourself for a market rally in 2016 and buy the best funds to cover the market and possibly a few beaten down sectors ready to pop in a growth environment. Here are a few good ideas on the bullish side:
- Vanguard Total Stock Market Index (VTSMX): If you want one of the best funds to cover the entire stock market, it’s tough to beat a cheap index fund like VTSMX. For a rock-bottom expense ratio of 0.17%, you get a passively managed mutual fund that holds over 3,700 stocks, most of which are large companies like Apple Inc. (AAPL), Microsoft Corporation (MSFT) and Exxon Mobil Corporation (XOM), though the fund also holds small- and mid-cap stocks for a complete capture of the total stock market.
- Fidelity Select Software & IT Services Portfolio (FSCSX): If there’s room left for the bull to run, the beaten-down technology sector could be ready to jump. Fidelity has three technology-sector funds, and FSCSX may be the best positioned for a bull market recovery in 2016. Its performance track record is strong and its focus on software and IT services, such as Microsoft, Oracle Corporation (ORCL) and Adobe Systems Incorporated (ADBE), can benefit from more investment in these areas from both consumers and corporations.
- Energy Select Sector SPDR (XLE): There may be more downside remaining in commodity-related funds in 2016, but buying a low-cost index fund or ETF like XLE that invests in large energy firms with staying power, such as Exxon, Chevron Corporation (CVX), and Schlumberger Limited (SLB), can be a smart long-term play. And if markets turn bullish in the short-term, XLE could be among the biggest benefactors of a positive turn for stocks.
Best Funds for Super Bowl Bears
Weakness in oil and China’s economy could continue to be drags on stock prices in 2016. All it would take to pull stocks into a full-blown bear market is a few quarters of worse-than-expected corporate earnings or some kind of surprise in the U.S. presidential election. So if the Denver Broncos win, and the Super Bowl Indicator adds to its impressive track record of pointing to the coming direction for stocks, here are some of the best funds to consider for the bearish case:
- Vanguard Total Bond Market Index (VBMFX): Bad news for stocks means the Fed will ease off the pedal on accelerating interest rates, which would translate into higher prices for bonds, especially Treasuries and high-quality corporate bonds that make up most of VBMFX. And in uncertain environments, the complexities of the fixed-income market are often more pronounced and a low-cost, diversified, passively managed bond fund like VBMFX is just what the doctor ordered.
- Fidelity Select Consumer Staples (FDFAX): Defensive stocks can still be losers in bear markets but you’ll minimize the downside with funds like FDFAX, where you’ll get exposure to big consumer staples companies like Proctor & Gamble Co (PG), British American Tobacco PLC (BTI) and CVS Health Corp (CVS). And FDFAX has historically been a category leader among consumer staples funds.
- Rydex Inverse S&P 500 Strategy (RYURX): A risky but sure-fire way to profit when the bear hits is with a good bear market fund like RYURX, which has an objective of matching, before expenses, the inverse of the S&P 500 index. For example, in January 2016, when the S&P 500 dropped down 5%, RYURX jumped up 4.7%. Just be careful not load up too much on an inverse strategy fund like RYURX — when the S&P gains, inverse funds lose.
To summarize, our list of best funds for the Super Bowl, let’s be clear that the outcome of this championship football game is not a causation of a bull or bear market but rather a correlation.
The Super Bowl indicator has no scientific backing. It just happens to be right much more often than it is wrong.
As of this writing, Kent Thune did not personally hold a position in any of the aforementioned securities. His No. 1 holding is his privately held investment advisory firm in Hilton Head Island, SC. Under no circumstances does this information represent a recommendation to buy or sell securities.