This year’s market volatility has left investors few places to hide, weighing on stocks and bonds. The fall has even affected other traditional haven assets such as gold. For those who adhere to a traditional portfolio structure of 60% stocks and 40% bonds, the year has been a painful one. The iShares Core Growth Allocation ETF, which reflects a 60/40 portfolio, is down more than 17% this year. Stocks suffered a sharp sell-off on Tuesday, with the Dow Jones Industrial Average shedding more than 1,200 points. The main averages failed to recover from the drop, accumulating heavy losses on the week. “This year has been quite challenging for portfolios in general and [Tuesday’s] the sell-off was pretty brutal,” said Geetu Sharma, founder and investment manager of AlphasFuture in Minneapolis. Bonds have fared no better. The Bloomberg Global Aggregate Index, a key fixed-income benchmark, fell into bear market, meaning more than 20% from its most recent high, in early September The 10-year US Treasury yield ended Friday at 3.455%, but the 2-year yield topped 3, 9% earlier in the day. Bond yields move inversely to prices.” It’s a tough road right now,” said Kathy Jones, chief fixed income strategist at Charles Schwab. That led investors to get creative about where they can look for security to preserve capital and guard against volatility. Here are some assets that are turning to Treasurys Although bonds have not performed well so far this year, there are still reasons to buy Treasuries in the future. First, US Treasuries. short-term loans can be used to offset interest rate risk in the portfolio. Because of their short duration, they are not as sensitive to Federal Reserve rate hikes as bonds further down the yield curve, Sharma said. Also, if the US slips into a recession, which is possible as the Fed tightens policy to reduce high inflation, that should be positive for bonds going forward. Buying those longer-dated Treasuries may be a good idea to lock in rates while they’re relatively cheap, according to Jones. In fact, DoubleLine Capital CEO Jeffrey Gundlach recently revealed that his firm bought long-term Treasuries. There are also inflation-protected bonds that may make sense for investors looking for 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 may also be a good idea for older investors looking for inflation protection, as long as they focus on shorter durations and don’t take up too much of the portfolio. Raw materials One of the few sectors that has performed relatively well this year is raw materials, mainly energy due to problems with supply and demand due to the Russian invasion of Ukraine. Natural gas, for example, has skyrocketed this year. One fund that captures these gains is the Fidelity Advisor Energy Fund. It is currently up 45% year to date. “He’s been 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. To be sure, these assets may not outperform going forward, however. They generally don’t do well in a downturn environment in which the Fed is tightening,” Jones said. These types of funds can be volatile, so tracking their performance is critical. Liquid Alternatives Liquid alternatives, which are mutual funds and exchange-traded funds that provide protection and diversification through sophisticated strategies, also look attractive. we have a pretty big focus on our outlook on alternative investments, even for individual investors,” said Greg Bassuk, chief executive of AXS Investments in New York. “It’s one of the longest-running alternative mutual funds,” Bassuk said. He also likes event-driven strategies, which take advantage of pricing inefficiencies around corporate events like mergers and bank failures, because they’re generally uncorrelated. with equity 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 has been delivering good absolute returns for the year,” he said In the current market environment, that can be a strong safety measure when stocks fall Investors exploring liquid alternatives should consider fees, as expense ratios for these types of funds can exceed 1% Using derivatives and margins in strategies can increase costs The 60/40 portfolio still has its merits Many investors this year may wonder if they should write off r the traditional 60% stock, 40% bond split after taking a hit. However, experts warn against this. “I don’t think you write off a strategy that’s been a good place to start 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 volatile times, it’s particularly important to make sure you’re keeping an eye on your portfolio and rebalancing appropriately. AlphasFuture’s Sharma recommends active management focused on providing more diversification and less volatility. That includes thinking about the macroeconomic context of the coming months and choosing assets that will gain at different points in the cycle. “I think investors need to be a little more selective and nuanced about investing and a simple 60/40 portfolio is not enough,” he said, adding that investors need to be picky about what goes into each part of their portfolio. purse.
These are the assets investors are turning to for protection in the market’s latest rout