At this point in the investment cycle, we want to retain exposure to stocks — but with flexible managers who can focus on pockets of the markets, reduce stock exposure and even sell short or hedge at their discretion, suggests Bob Carlson, editor of Retirement Watch.
One such holding is Cromwell Marketfield (MFADX), which has the ultimate flexibility. It can invest in almost any asset. It also can use derivatives and sell short. The managers apply current market and economic data to their frameworks of how markets and the economy work.
The fund began taking commodity- and energy-related positions some time ago in anticipation of higher inflation. It also has been selling short the stocks of companies it considered overpriced and vulnerable.
Another flexible fund is Leuthold Core Investment (LCORX). It uses updated versions of valuation and trend models developed by now-retired founder Steve Leuthold. The fund can invest in most types of investments and can sell short.
The fund has been fairly bearish on stocks for a while. About 66% of the fund is invested in long stock positions (both U.S. and international stocks), but about 18% of the fund is in short stock positions. That gives the fund a net long stock position of about 50%.
The fund also follows its models to underweight and overweight sectors of the stock indexes. LCORX further has been bearish on bonds, investing only 13% of the fund in fixed income. Almost 34% of the fund is in cash.
As the end of the first quarter, it owned 208 stocks and 19% of the fund was in the 10 largest positions. Top stock holdings were Microsoft (MSFT), Target (TGT), Lam Research (LRCX), UnitedHealth Group (UNH) and Applied Materials (AMAT).
Wrapping up our trio of funds that are flexible and have stock exposure is Hussman Strategic Growth (HSGFX). The fund is invested in about 270 stocks that meet its criteria of having strong growth and fundamentals but sell at reasonable prices. Few stocks are more than 1% of the fund.
The fund also can use options or futures contracts to either hedge the portfolio against a market decline or leverage it in anticipation of a rally.
Fund manager John Hussman uses both valuations and what he calls market internals to adjust futures and options positions. The valuation analysis is long term, while decisions based on market internals can be short term. Hussman’s data indicate stocks are very overvalued and are likely to deliver below-average returns over the next 10 years.
Recent market internals also aren’t favorable. The result is the fund largely is hedged against a market decline. The fund is up 16.72% for the year to date.
