Don’t expect the Fed to put a floor under stock prices and rescue investors, cautions Bob Carlson, fund and ETF expert and editor of Retirement Watch.
There will be bear market rallies in stocks and other assets and occasional declines in interest rates. But those will be temporary trends until high inflation expectations are diminished. There won’t be sustained rallies in stocks and many other investments until it is clear the Fed will loosen monetary policy.
Inflation and Fed policy could turn sooner than I think. That’s why we have several funds with flexible strategies that can change positions quickly with the markets and economy.
Hussman Strategic Growth (HSGFX) simultaneously pursues two strategies. The first strategy is to purchase stocks using metrics developed by manager John Hussman.
The fund seeks stocks of companies with above average growth in their business fundamentals, but the stocks must be selling at reasonable prices relative to the growth of the businesses.
The fund typically owns about 280 stocks. Few stocks are more than 1% of the fund and most are 0.50% or less of the fund.
The second strategy is to either leverage or hedge the portfolio using futures or options. Hussman looks at both valuations and what he calls market internals to decide the extent to which the fund should be hedged or leveraged.
In recent years, the fund has been hedged most of the time because both valuations and market internals were unfavorable. The hedging generates positive returns for the fund when stock indexes are declining.
We also take low-risk positions in the stock market through Leuthold Core Investment (LCORX). The fund can invest in most publicly traded investments. It also can sell short stocks. The managers use current versions of the valuation and trend models developed by retired founder Steve Leuthold to adjust the fund’s positions.
The models have been mostly negative about both bonds and stocks for some time. A result is the fund’s modest positions in bonds.
LCORX has both long and short positions in stocks, buying those that seem likely to do better than the indexes and selling short others. After netting long and short positions, about 44% of the fund is invested in stocks. The fund steadily increased its cash position over the last year. Recently, 34% of the fund was in cash.
