If you're nervous about your money in the coming year, just remember that passive investors who do nothing will get hurt the worst. In the words of Gordon Gekko, roguish trader in the 1987 movie Wall Street: "Sheep get slaughtered."
As 2016 gets off to a painful start, the correction we've already witnessed could deepen into a prolonged bear market. Plunging energy and commodity prices, chaos in the Chinese economy, geopolitical uncertainty, a debt-laden eurozone, renewed tensions in the Middle East -- a long list of woes now threaten to usher in a bear market. That spells doom this year for over-hyped stocks with weak fundamentals.
In fact, the analysts at UBS this month issued a report arguing that key indicators point to a major bear market in stocks worldwide in 2016.
Hey, we can't blame you for getting worried. But we can blame you, if your only reaction is to run for the hills. In the context of today's uncertainty and pessimism, you can either flee to safety (and receive dismal returns), do nothing (and get slaughtered), or be proactive and take decisive measures.
Below are three aggressive ways to beat the bear. During a downturn, each of these exchange-traded funds (ETFs) allows you to hedge your portfolio and simultaneously profit.
This ETF focuses on U.S. based, mid- and large-cap stocks with low earnings quality, regardless of their brand name or favor on Wall Street. To find these dangerous stocks, HDGE managers scrutinize income statements to uncover hidden weaknesses.
After pinpointing equities with particularly weak fundamentals, the fund shorts them. With net assets of $122.53 million, HDGE shorts the very stocks that tend to fall the hardest in a bear market. Major holdings now include Caterpillar and Harley-Davidson. Over the past month, HDGE has gained 11.30%, compared to a 9.72% loss for the S&P 500.
With $1.65 billion in assets, the ProShares Short S&P500 follows a simpler but still effective game plan: It seeks to match the inverse of the daily performance of the S&P 500. The fund invests in derivatives that measure 500 large-cap U.S. stocks. Over the past month, this inverse ETF has gained 9.55%.
If you're pessimistic about the prospects of overseas stocks and their respective regions or markets, this ETF lets you bet against the MSCI EAFE index, one of the most common international equity indexes.
As geopolitical strife and sovereign debt woes continue to bedevil markets in the Middle East, Russia and eurozone, EFZ allows you to profit by seeking a daily performance that's the inverse of the MSCI EAFE. With net assets of $72.97 million, the ProShares Short MSCI EAFE ETF has gained 10.78% over the past month.
This year, the broader markets have gotten off to a horrific start. In fact, the S&P 500 has now officially "corrected." If you want to see a list of the absolute worst stocks you can own in today's investment environment, read our eye-opening report. Inside, you'll discover the market's most overvalued stocks, and learn the process you can use to keep avoiding them in the future. Click here now for a copy.
John Persinos is editorial manager and investment analyst at Investing Daily. At the time of publication, the author held no positions in the stocks mentioned.