This Day On The Street
Continue to site
ADVERTISEMENT
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

Protecting Your Portfolio Against the Threat of Rising Rates

NEW YORK (TheStreet) -- In the wake of an absolutely stellar performance last year, thus far in 2014 we are hearing a lot about what's not working for investors, both professional and retail.

The major indices have had a rocky go of it, and the recent selloff in the Nasdaq momentum names including Netflix (NFLX), Tesla (TSLA) and Amazon (AMZN) has pulled the rug out from under many investors. But there are many investments that have been standing out the past few months -- some of which are getting adequate attention, some which aren't.

After last week's rout, all the major indices (Dow Jones Industrial Average, S&P 500 and Nasdaq) are in negative territory for 2014. Bonds are out-performing stocks for the first time since 2011. Almost exactly a year ago year Warren Buffett called bonds "a terrible investment." He is probably right over the intermediate term and almost certainly right over the long term, as the rewards for ownership are no longer remotely commensurate with the risks.

So what's an investor to do?

Below is a chart reflecting the year-to-date performance of three separate, interest-rate-sensitive asset classes: Utilities (represented by the iShares Dow Jones US Utilities (IDU)), Equity REITs (represented by Vanguard REIT ETF (VNQ)), and Master Limited Partnerships (represented by JPMorgan Alerian MLP Index ETN (AMJ)).

AMJ Chart
AMJ
data by YCharts

While most headlines seem to be encouraging investors to protect their portfolios against the imminence of rising rates, there has been little gained by acting on that advice up to this point. In reality what we have seen is a continuance in the trend of rates moving lower, though not without some turbulence. The chart below shows that the 10-year Treasury remains solidly in a downward trend, despite all of the reasons why rates "should" be heading back towards more "normal" levels.

10 Year Treasury Rate Chart10 Year Treasury Rate data by YCharts

Is it possible that the next 50-basis point move in the 10-year Treasury is down, not up? Why not? And if so, what does that mean for the stock market and the asset classes mentioned above?

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
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
AAPL $132.04 1.87%
FB $80.55 1.53%
GOOG $539.79 1.40%
TSLA $247.43 -0.01%
YHOO $43.38 1.24%

Markets

DOW 18,162.99 +121.45 0.67%
S&P 500 2,123.48 +19.28 0.92%
NASDAQ 5,106.5930 +73.8420 1.47%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs