3 / 708
It was a pretty good year for the economy but a subpar
year for investing. Most fund categories were in
the red or just slightly in the black in
2015
. Falling oil
prices, a rising dollar, and our first interest-rate
hike since
2006
made for a volatile mix. On top of that,
there’s some worry that a recession is not far around
the corner.
After a long bull market, it isn’t a shock to see
markets back up a bit. After all, the S
&
P
500
has
tripled from its
2009
low point. On the other
hand, commodities and emerging markets have
been much less rewarding in recent years, and
that’s not a coincidence. Slower-than-expected
growth in China hurt commodities prices because
they’re closely tied to that country’s economy.
In addition, Saudi Arabia’s crude production boost,
combined with increased fracking in the United
States, pushed oil prices to remarkably low levels.
So you’ll find that energy and emerging markets
played a big role in your
2015
fund returns. Funds
that avoided both looked great while those that had
meaningful exposure to either of them generally
suffered dismal performance. That includes equity
funds as well as high-yield bond funds.
And now the Federal Reserve is raising rates. But that
doesn’t spell doom. Fed chairwoman Janet Yellen
has signaled that the plan is to hike very gently. We
are starting from very low levels, so a couple of
interest-rate increases doesn’t mean the Fed
is slamming the brakes on the economy. Should
the economy trend downward, even the gradual
rate-hike plan could be put on hold.
Where to Invest
Finding attractive investments today is something of a
challenge because higher-risk assets have generally
gotten cheaper while lower-risk assets have not. But
you almost certainly don’t want to sell conservative
investments across the board while buying risky ones.
This isn’t Las Vegas. So, I’ll start with ideas on the
low-risk side and work my way up to more-aggressive,
opportunistic ideas.
Conservative Ideas
The best time to buy insurance is when it doesn’t
appear to be needed. With oil prices plummeting,
inflation-protected securities are now a pretty good
deal by most measures.
If you have a large part of your portfolio in fixed
income, then some inflation insurance is a good idea.
Ideally, you should own your Treasury Inflation-
Protected Securities fund in a tax-sheltered account
because you have to pay taxes on any uptick in
the
TIPS
’ values.
There are three strong options here.
Vanguard Short-
Term Inflation-Protected Securities Index
VTIPX
is my favorite because it doesn’t come with much
interest-rate risk. You can also go with
Vanguard
Inflation-Protected Securities
VIPSX
or
Harbor Real
Return
HARRX
. Harbor Real Return is run by
PIMCO
’s Mihir Worah using a wide array of inflation-
linked bonds outside the U.S. as well as derivatives.
Where to Invest in 2016
and Beyond
Fund Reports
5
Artisan Global Value
Dodge & Cox Global Stock
T. Rowe Price Blue Chip
Morningstar Research
8
Great Small-Cap Funds
The Contrarian
10
Buy the Unloved
Red Flags
11
Funds With High Payout Ratios
Market Overview
12
Leaders & Laggards
13
Manager Changes and News
14
Portfolio Matters
16
Transitioning From Growth to
Retirement Income
Tracking Morningstar
18
Analyst Ratings
Income Strategist
20
High Yield Faces Challenges but
Isn’t in Third Avenue’s Shoes
Changes to the 500
22
FundInvestor 500 Spotlight
23
Follow Russ on Twitter
@RussKinnel
RusselKinnel, Director of
ManagerResearch and Editor
FundInvestor
January 2016
Vol. 24 No. 5
Research and recommendatio s for the s riou fund investo
SM
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