Janet M. Brown is the president of the FundX Investment Group and managing editor of the NoLoad FundX newsletter, San Francisco. FundX.com
When stocks are plunging, bonds typically rise, helping to offset volatility in your portfolio. That’s why advisers recommend that you maintain a balanced portfolio. But from the start of 2020 through March 18, when the total stock market lost 26%, the total bond market fell 5%—softening but not completely offsetting the harm. So where can you turn for help to better balance your portfolio?
Consider “alternative” funds, specifically ones that use strategies designed to reduce volatility and possibly provide some growth in topsy-turvy markets. Alternative funds can short-sell (bet against) stocks and/or invest in non-traditional investments that move differently from stocks and bonds. Although alternative funds lagged behind stocks during the 11-year bull market, they could be helpful in the coming years when bonds likely will offer very low returns and stocks are likely to continue their jarring volatility.
Studies have shown that converting a portfolio of 60% stocks and 40% bonds to one with 50% stocks, 30% bonds and 20% alternative investments can produce similar long-term returns while reducing volatility.
Two attractive alternative funds…
Core Alternative ETF (CCOR) mixes high-quality dividend-paying stocks and stock options, which offer protection by giving the fund manager the right to buy or sell a stock for a predetermined price at a future date regardless of the actual price on that date. The fund gained 1.3% this year through March 18 and 0.2% through June 26. It has returned an annualized 4.7% since its 2017 launch. Recent yield: 1.45%. CoreAltFunds.com
Infinity Q Diversified Alpha Investor (IQDAX) uses short-selling as well as investing in currencies, commodities and options. The fund gained 6.3% through March 18 and 9.5% through June 26. It has returned an annualized 6% since its 2014 inception. InfinityQ.com