Below Zero: Consumer Stocks Like P&G (PG) Can Shrug Off Negative Rates - TheStreet

If the United States joins the sub-zero club of countries that already have negative interest rates, then how should you invest? 

It might sound daunting because in large part, it's not something that's taught in investing classes at college or grad-school, or in fact, most other places. 

Still, there are some asset classes that should fare better than others: high-quality bonds that lock in higher rates, defense stocks and alternative assets such as fine art.  It's worth noting that the price of bonds with longer maturities tend to move more than those with shorter maturities. If rates are declining, then longer-dated securities make more sense.

Corporate Bonds

Longer-term corporate bonds issued by quality companies make sense, says Peter Tchir, managing director for macro income strategy at Brean Capital. He says the sweet spot is A-rated bonds, right in the middle of the investment-grade ratings range from AAA through BBB.

Most companies with such ratings will be able to raise capital in the slow-growth economy that would accompany below-zero borrowing costs. 

One area to avoid is the bonds of banking companies, as negative rates tend to make lending a tough business. For the same reason, it probably makes sense to avoid stocks of financial firms such as those in the Financial Select Sector SPDR (XLF) - Get Report  exchange-traded fund.

Municipal Bonds

For the same reasons that investment-grade corporate bonds are preferable, Tchir says municipal bonds also make sense. Again, long-dated securities are better than shorter ones.

"Go with general obligation bonds in the too-big-to-fail states," he says. Such securities aren't tied to the revenue of specific projects such as bridges or tunnels.

Two of the large, populous states likely to be considered too big to fail are New York and California.

Investors not interested in choosing individual bonds may wish to take a look at the Fidelity Advisor NY Municipal (FEMIX) - Get Report or the American Century California High Yield Municipal (BCHYX) - Get Report   funds, which invest in municipal bonds from New York and California respectively. Both specialize in longer term bonds.

Defensive Stocks

"Look for investments that will do well in slow-growth environments," says Brad McMillan, chief investment officer for Commonwealth Financial Network. Specifically, certain utility stocks could make sense "where the rate of return is regulated" by governments; and certain types of Master Limited Partnerships, where the revenues are connected to long-term contracts and not to the price of energy being piped, he says.

Another choice sector is consumer staples such as soap and shampoo. "Purchases are largely not elective," says McMillan. For that reason, Procter & Gamble (PG) - Get Report and Colgate-Palmolive (CL) - Get Report should be considered.

Fine Art

Alternative asset classes, including art, become quite popular during unusual economic conditions, says Joe Brusuelas, chief economist at professional services firm RSM in New York.

One of the issues with art investing has always been that paintings don't yield monetary dividends. Worse still, you need to pay for storage and insurance. But if your savings account actually takes money away from you each month, then the playing field for artwork levels off.

You can buy individual pieces yourself, but for many people, it can be an area fraught with other problems, such as forged copies, lack of liquidity, and the fact that some artists go out of fashion. Instead, you might want to buy shares of companies that auction art, such as Sotheby's (BID) - Get Report , which takes a portion of the sale price.

Procter & Gamble is a holding in Jim Cramer's Action Alerts PLUS charitable trust. Want to be alerted before he buys or sells the stock?Learn more now.

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