These are the assets investors are turning to for protection in the latest market rout
Market volatility this year has left little hiding place for investors, weighing on stocks and bonds. The decline even affected other traditional safe-haven assets such as gold. For those who adhere to a traditional portfolio structure of 60% stocks and 40% bonds, it’s been a painful year. The iShares Core Growth Allocation ETF, which reflects a 60/40 portfolio, has fallen more than 17% this year. Stocks suffered a sharp sell-off on Tuesday, with the Dow Jones Industrial Average losing more than 1,200 points. The major averages failed to recover from the decline, racking up heavy losses on the week. “This year has been quite challenging for portfolios at all levels and [Tuesday’s] the sell off was pretty sharp,” said Geetu Sharma, founder and investment manager of AlphasFuture in Minneapolis. Bonds did not fare any better. 20% from its most recent peak – early September. The 10-year US Treasury yield ended Friday at 3.455%, but the 2-year yield rose above 3.9% earlier in the day. Bond yields move inversely to prices. “It’s a tough job right now,” said Kathy Jones, chief fixed income strategist at Charles Schwab. This has led investors to get creative about where they can turn for safety in order to to preserve capital and hedge against volatility.Here are a few assets they are currently turning to to shore up portfolios.Treasuries Even though bonds haven’t performed well year to date, there are more reasons to buy treasury bills in the future.First, short-term US treasury bills can be used to offset interest rate risk in one’s portfolio.Because of their short duration, they aren’t as sensitive to Federal Reserve rate hikes as bonds further down the yield curve, Sharma said.Plus, if the U.S. falls into a recession — which is possible as the Fed tightens its policy to bring down high inflation – this should be positive for bonds going forward. According to Jones, it may be wise to acquire these longer-dated Treasuries to lock in rates when they are relatively cheap. Indeed, DoubleLine Capital CEO Jeffrey Gundlach recently revealed that his company has been buying long-term Treasuries. There are also inflation-protected bonds that may make sense for investors looking for more yield. These include I-bonds, which offer an initial interest rate of 9.62% for issues purchased through October. In addition, Treasury inflation-protected securities can also be a good idea for older investors looking for inflation protection, as long as they focus on shorter durations and don’t take too much room in their wallet. Commodities One of the few sectors to have performed relatively well this year is commodities, mainly energy due to supply and demand issues following Russia’s invasion of Ukraine. Natural gas, for example, has surged this year. One fund that captures these gains is the Fidelity Advisor Energy Fund. It is currently up 45% since the start of the year. “He’s a rock star this year,” said Ron Tallou, founder and owner of Tallou Financial Services in Troy, Michigan, adding that the fund has also performed relatively well in previous years. “For anyone looking to diversify their portfolio, this could be a good place. Admittedly, these assets may not outperform in the future, however. tightens,” Jones said. . These types of funds can be volatile, so it is essential to monitor their performance. Liquid alternatives Liquid alternatives, which are mutual funds and exchange-traded funds that offer protection and diversification through sophisticated strategies, also look attractive. has placed great importance on our perspectives on alternative investments, even for individual investors,” said Greg Bassuk, CEO of AXS Investments in New York. The company’s AXS Chesapeake Strategy Fund, a managed futures offering, is up more than 20% “It’s one of the oldest alternative mutual funds,” Bassuk said. He also likes event-driven strategies – which take advantage of pricing inefficiencies around corporate events such as mergers and banking. breakouts – because they are generally uncorrelated with stock markets. The AXS Merger fund is up more than 2% year-to-date and is ranked in the top 10% of its sector group by Morningstar. “It provided good absolute returns for the year,” he said. In today’s market environment, this can be a solid safety measure when stocks fall. Investors exploring liquid alternatives should be aware of fees, as expense ratios for these types of funds can exceed 1%. Strategies’ use of derivatives and margining can drive up costs. The 60/40 portfolio still has its merits This year, many investors may be wondering if they should give up the traditional allocation of 60% stocks and 40% bonds after having been hit hard. Experts warn against this, however. “I don’t think you throw away a strategy that’s been a good starting point for forty or fifty years because you had a bad year,” Schwab’s Jones said. “It’s never been a perfect allocation, but I think it’s a great starting point and I think over time it will probably continue to work.” Instead, in times of volatility, it’s especially important to make sure you’re monitoring your portfolio and rebalancing it appropriately. AlphasFuture’s Sharma recommends active management focused on greater diversification and less volatility. This involves thinking about the macroeconomic backdrop in the months ahead and choosing which assets will gain at different points in the cycle. “I think investors need to be a bit more selective and nuanced in their investments and a simple 60/40 portfolio is not enough,” she said, adding that investors should be picky about what goes into every part of their portfolio.