What fund categories would do better (or not as bad as others) in a
declining economic environment?
i.e. if the stock market begins to head south, if the real estate 'bubble'
begins to bust, etc.
Would an equity-income fund (stock dividends, etc) do better than a large
cap growth fund - I would imagine so.
Thanks,
Walter
"Walter Cohen" <> wrote in message
news:7SRNe.557$
> What fund categories would do better (or not as bad as others) in a
> declining economic environment?
> i.e. if the stock market begins to head south, if the real estate 'bubble'
> begins to bust, etc.
>
> Would an equity-income fund (stock dividends, etc) do better than a large
> cap growth fund - I would imagine so.
>
> Thanks,
> Walter
As the economy contracts the best sectors historically have been consuner
staples, utilities, financials, and consumer cyclicals. This is according to
Standard & Poor's.
An equity income fund could be a good choice but these are very different
one from the other. Many of these are large cap value funds. I think I'd
rather go with a fund in the moderate allocation category.
Walter Cohen wrote:
> What fund categories would do better (or not as bad as others) in a
> declining economic environment?
> i.e. if the stock market begins to head south, if the real estate 'bubble'
> begins to bust, etc.
A long-term bear market can be caused by several different economic
conditions, and so you need to invest depending on the specific
conditions that are causing that declining market environment.
We just had a great example from 2000-2002, a non-inflationary economic
contraction. The S&P 500 declined by nearly 50%. But bond funds and
real estate (REIT) funds did quite well, as the Fed lowered interest
rates to buoy the economy.
We had a different situation in the 1970's. Stagflation following the
Vietnam War proved to be very bad news for the broader stock market.
But gold funds did well, as investors scurried to gold as inflation
accelerated. The prices of many other commodities were rising sharply
in this inflationary environment too, so natural resource funds would
have done well too, if any had existed back then. Money market funds
were doing well too, as the Fed boosted short-term interest rates to
fight inflation. (At one point, the yield on money market funds climbed
to 18% annualized.)
More recently, energy and commodity prices have been rising sharply.
Combined with the cost of the counter-insurgency war we are now
fighting, I believe this may portend a return to the stagflation of the
1970's (though hopefully not as severe). That's why I invested in
natural resource funds like RSNRX over the last few years, with a
somewhat smaller stake in gold funds. This time, unlike the stagflation
of the 1970's, we are also facing a real estate bubble--so I wouldn't
invest in real estate or real estate funds at this time.
> Would an equity-income fund (stock dividends, etc) do better than a large
> cap growth fund - I would imagine so.
In a bear market, all highly diversified stock funds will decline. It's
just that some will decline a lot more than others. Just check how
equity-income funds did in the period 2000-2002. And I avoid playing
individual economic sectors (like those Fidelity Select funds) because I
don't consider myself that knowledgeable on sector economics. (The only
sectors I ever invest in, as I noted above, are natural resources and
real estate.)
If you want to actually profit during a bear market, you must either
avoid that market or bet against that market.
--
Steven D. Litvintchouk
Email:
Remove the NOSPAM before replying to me.