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How to Navigate the Market in Spite of Bernanke

The last two trading days offer a glimpse of what could be coming when the Fed does cease its asset purchase program. Yet the market's behavior this week has been driven more by fear of the unknown than anything else.

Of course, that is normal market behavior. Markets panic when confronted with the unknown. Fortunately, this is market behavior we have all seen before and -- I hope -- is something we have all learned from.

In my articles on exchange-traded funds over the years, I have written about the importance of being overweight short-duration funds or individual issues in the fixed-income portion of a portfolio.

The yield has been low, but these funds will avoid the carnage that could be inflicted on funds like TLT. Some examples include BulletShares Corporate Bond ETFs from Guggenheim or the iShares AMT-Free Muni Bond ETFs. Both suites of funds allow investors to choose a maturity.

For example, all of the bonds in the iShares 2015 AMT-Free Muni Bond ETF (MUAD) mature in 2015, so the fund avoids reasonable interest rate risk.

Another possibility is the Market Vectors Investment Grade Floating Rate ETF (FLTR), which obviously owns floating-rate debt. In the last few weeks bond funds of this sort have generally been up or down 0.50%, but FLTR has actually been up 4%, while TLT has dropped 14%.

Dividend-oriented equities likely wouldn't be able to sidestep a large decline caused by rising rates because they tend to be sensitive to interest rates.

A decline, however, does not necessarily mean the company is in trouble. Companies with decades of a track record of growing their businesses and dividends will continue to do so, and their dividends and any decline could be an opportunity to add to positions even if there are further declines ahead.

At the time of publication, Nusbaum had no positions in securities mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
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FLTR $24.62 0.09%
TLT $127.82 -1.01%
MUAD $0.00 0.00%
AAPL $93.66 -0.09%
FB $118.57 0.84%


Chart of I:DJI
DOW 17,891.16 +117.52 0.66%
S&P 500 2,081.43 +16.13 0.78%
NASDAQ 4,817.5940 +42.2360 0.88%

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