This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Scared? Rest Easy With This Portfolio

If the emails I've received from readers and the comments left on my blog are any indication, a lot of folks are pretty unnerved by the stock market's recent decline.

So I've constructed a portfolio of exchange-traded funds and mutual funds with returns that have a low correlation to the S&P 500. In fact, this is almost a lazy man's portfolio: The only thing you need to monitor is whether any new products are introduced that will turn out to be better mousetraps.

The benefit of this sort of approach is that you have a good chance of being down less in a bad market. But you will likely be up less the next time the market is up 25% in a year.

PowerShares S&P 500 Buy Write Portfolio (PBP), 30% allocation.

PBP is a proxy for U.S. exposure. It is a new fund that benchmarks to the CBOE Buy Write Index. As you can see from the two-year chart comparing it with the S&P 500, the Buy-Write index feels the ups and downs but does so with reliably less volatility. Over the last 10 years, it has had about 73% of the volatility. So PBP should track the Buy-Write index and also offer some yield (the dividend will be composed of dividends from the 500 stocks in S&P plus the call premium. You can read more about the fund here .

Wisdom Tree Pacific Ex-Japan High Yielding Equity Fund (DNH), 20% allocation.

DNH is mostly invested in Australia and New Zealand. It is not necessarily a low-beta fund, but Australia offers excellent diversification because as a commodity-based country it is usually at a different point in its economic cycle than the U.S.

Moreover, Australia's unemployment rate is going down, not up, and its central bank, the Reserve Bank of Australia, is mulling whether to raise rates, while the Fed has been lowering rates.

As I wrote here , I prefer DNH over the iShares MSCI EAFE Index Fund (EFA) for several reasons including its higher yield and lower correlation to the U.S. market.

iShares S&P Global Infrastructure Index Fund (IGF), 5% allocation.

I wrote about this fund a few weeks ago in the hope that it would offer results that do not correlate to the U.S. stock market. So far the correlation has been 0.52, and since inception in mid-December, IGF is down only 8% vs. 12% for the S&P 500. While that may not sound great, remember that the goal is to be down less.

The idea here is that regardless of cycles and market action, infrastructure spending will continue. I would not hold out false hope that infrastructure stocks could somehow go up when everything else is going down, but I believe there is a fundamental case for them going down less and generally being less volatile.

iPath DJ AIG Agriculture Total Return Sub Index ETN (JJA), 5% allocation.

Commodity exposure is a great way to reduce a portfolio's correlation to the S&P 500. Since inception, JJA has had a negative 0.163 correlation to the S&P 500, and it's up 20% through Friday, vs. an approximate 15% decline for the S&P 500.

The reason I am going with food over gold is that I buy into the notion that food will become a more precious commodity as demand increases. JJA and other investments that track agriculture prices are all up a lot lately, and while they could be volatile, they should continue to have very little correlation to U.S. stocks.

(NARFX) (NARFX), 10% allocation.

Nakoma is an actively managed long/short fund that has a correlation of just 0.292 to the S&P 500 with about a quarter of the volatility. I interviewed the fund's managers last fall and came away very impressed. Like the hedge fund that preceded it, NARFX has a track record of very slow and steady gains.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
PBP $20.27 -0.64%
BWX $56.58 0.87%
TIP $114.88 -0.04%
IGF $39.97 0.28%
JJA $37.04 0.65%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs