The U.S. economy appears to staying on the comeback trail, even if it’s a jobless recovery so far.
But how can you position clients’ portfolios, if the economy slows again and experiences a double-dip?
We asked several advisors for their recommendations.
Marla Mason, CFP, Presidential Brokerage Inc.,Greenwood Village, Colo.
There are two no-load mutual funds that I find very helpful in reducing volatility (especially on the downside) when designing portfolios.
They are: (1) the Permanent Portfolio (PRPFX), managed by Michael Cuggino, and (2) the Hussman Strategic Total Return (HSTRX), managed by John P. Hussman.
I often use these funds in conjunction with each other, since the managers’ strategies tend to differ — even though they both fall into the conservative-allocation fund category.
Both funds meet the following criteria:
o Five-star Morningstar rating
o Inception more than five years ago
o Same manager for last five years or more
o Bear market decile rank of 1
o Beta less than 0.8
I may allocate 20 to 60 percent of a portfolio to these two funds (e.g., 10 to 30 percent each) depending on the client’s situation, risk tolerance, and market conditions.
This strategy can provide the desired stability to allow additional risk to be factored into the portfolio and potentially boost return, while not significantly jeopardizing the overall return in a negative market.
Jody Team, CFP, Team Financial Strategies, Abilene, Texas
We have developed a “flexible fund” allocation as the core of our portfolio to allow client portfolios low correlations to the overall stock market, while still giving opportunities for return.
One of my favorite funds right now is Hussman Strategic Growth (HSGFX).
John Hussman has done a great job of reducing market risk by using options markets, while investing in companies with long-term investment merit.
Other funds in our flexible funds category are Arbitrage Fund (ARBFX), which seeks out merger and acquisition opportunities and has maintained low market correlations; Leuthold Asset Allocation, (LAALX) which is a go-anywhere fund that can outperform in up or down markets; and TFS Market Neutral (TFSMX), which is a long-short fund but is currently closed to new investors.
Right now, we believe deflationary forces are weighing on this market.