Before you take gains from any of your stocks or increase your bond holdings, consider these alternatives to rebalancing your portfolio.
January just ended, a time when many investors adjust their asset allocations and, given that equities in 2013 had strong gains, this year it means that many have reduced their stock holdings. Many also are considering moving those gains into bonds but with the stimulus program from the federal government continuing to scale back and a likely increase in interest rates to follow, bond prices will inevitably fall. And, since current yields are low, holding onto your bonds until they mature might still mean that you lose money due to inflation.
A number of better alternative were recently offered by Mark Hulbert, and investment columnist for Market Watch and The Wall Street Journal’s Financial Digest, which tracks published advice from several financial newsletters. After reviewing and interviewing many of them, he was able to recommend based on the advice of several of these top market gurus.
For example, the editor of Now Load Usual Fund Selections and Timing, Stephen McKinley, advised on investing in smaller enterprises that are in the early stages of their growth including MCG Capital and MVC Capital. “Assuming we are not in a recession and not heading for one, then these business-development companies look like a pretty good alternative to bond,” McKee says.
Editor of Conrad’s Utility Investor, Roger Conrad recommended a number of Energy and REITs including RioCan Real Estate Investment Trust, a Canadian REIT, and Candor Morgan Energy Partners, and MLP with a yield of nearly 7%. Although REITs are sensitive to the changes in interest rates, ( and as such, similar to bonds) “rising rental rates from an improving economy should more than compensate in the longer run,” according to Sound Advice editor Gary Cardiff.
It’s important to note that none of the top advisers that were interviewed by Hulbert recommended that an investor completely sell all of their bonds. What they did advise however was to keep maturities short which would limit any fallout from the inevitable rise of interest rates.
An average duration in bond holdings of no longer than 13 months was recommended by the editor of Marketimer, Bob Brinker. (Average duration is a measure of the sensitivity that a bond has to interest rate fluctuations.) A number of the short-term bond funds that Brinker recommended were Fidelity Floating Rate High Income, Osterweis Strategic Income and Metropolitan West Load Duration Bond.