It’s funny, but some of the most ridiculed assets have beaten the pants off the stock market so far this year.
The property market is a disaster right? Well, the right investment in property has beaten the market.
U.S. dollars are toilet paper about to be destroyed by the Federal Reserve? Cash has turned out to be ‘king’ lately.
The list goes on….
(Note that S&P 500 year-to-date returns are calculated as of 9:30AM on 9/1/10, and are before dividends)
Beat the S&P by: Inflation may have eaten away some of a dollar's real value, but inflation applies to stocks as well. Thus even in inflation-adjusted terms, cash beat the S&P by 5.67%.
Why it beat the market: People love to trash the U.S. dollar, with people like Marc Faber likening it to toilet paper, but it actually has done pretty well lately... relative to stocks. Usually holdings cash under your mattress isn't the best investment decision, but it has at least beaten the stock market so far.
Cash's number one enemy tends to be inflation and so far inflation has remained surprisingly tame. While government bonds offer a higher yield than cash, they are also exposed to inflation risk as cash is, and don't offer the liquidity of cash. If you sell a government bond before it matures, it's possible to realise a loss. But with cash, you can pull it out of the bank (or from your mattress) at any time and you'll have the full value (minus inflation, in real terms) ready to deploy into whatever investment opportunity you see.
Many have re-declared cash as 'king' lately. Just watch out if inflation perks up.
Investment: Health Care REIT, Inc. (HCN)
Investment Return YTD: 4.74%
Beat the S&P by: 9.19%
Why it beat the market: Healthcare is a classic defensive sector, and given America's ageing population plus continued healthcare problems, many believe that the healthcare industry has a very bright future in the U.S.. Some might argue that the current government has also been less harsh towards the sector than was originally expected. These factors may have played into the relative strength of this Healthcare real estate investment trust vs. the overall stock market.
If more hospitals and care facilities are built under the new health care measures, we could see further interest in healthcare REITs. Demand for hospitals and care facilities is unlikely to wane -- it's more the regulatory side of the equation which remains uncertain.
Investment: PowerShares Build America Bond Portfolio (BAB)
Investment Return YTD: 10.17%
Beat the S&P by: 14.62%
Why it beat the market: U.S. treasuries haven't been the only bonds to outperform stocks; Build America Bonds haven't done badly either. One driver has been the general investor fund flows out of stocks and into bonds, but Build America Bonds also offer an escape from the uncertainty of similar investments such as standard municipal bonds.
For example, there's less need to fear a credit ratings shakedown of the cities and states whose fiscal coffers have been ravaged by the crisis (see Jefferson County). BABs have the advantage of being supported directly by the federal American Recovery and Reinvestment Act and consistently offer rates that beat Treasury yields by a mile.
However, do beware that BABs often come with a make-whole call options which may go into effect should the government refuse to pay the subsidy on these munis.
Investment: ProShares UltraShort Crude Oil ETF (SCO)
Investment Return YTD: 12.31%
Beat the S&P by: 16.76%
Why it beat the market: Demand for oil in developed markets such as the U.S. is actually lower than before crisis, and while demand from developing nations is surging, it hasn't been enough to send oil prices substantially higher so far. Thus shorting oil has been a decent strategy, beating the S&P 500 based on the ETF above.
Still, Paul Krugman has said that the days of cheap oil are no more, as emerging market economies grapple for their share of energy in a zero-sum global supply game. Case in point, Chinese demand has grown rapidly year-to-date. Moreover, if the Korea National Oil Corporation's (KNOC) recent hostile takeover of Aberdeen's Dana Petroleum is any harbinger of things to come, then prepare for nations to get down and dirty in their quest to fuel their collective oil hunger. Thus past performance may not reflect what's to come.
Investment: SPDR Gold Trust (GLD)
Investment Return YTD: 13.61%
Beat the S&P by: 18.06%
Why it beat the market: Gold has climbed to $1,250 recently and there is a slew of market commentators who expect it to run far higher. You can take your pick of the fears which could be supporting gold prices right now -- whether it be fears about the U.S. and European debt loads, lack of faith in paper currencies due to stimulus policies, expected inflation, or general economic malaise.
These fears combined have allowed gold owners to once again laugh in the face of the stock market so far this year.
Investment: Dow Jones Equity All REIT Total Return Index
Investment Return YTD: 16.26%
Beat the S&P by: 20.71%
Why it beat the market: The American housing market is still in the dumps right? Well, if you were bearish on the investment funds which hold real estate, Real Estate Investment Trusts (REITs), you missed an excellent year-to-date performance. Forget the rhetoric about America's housing market still being a disaster, it's not that simple since REITs actually beat the market so far this year, as measured by the Dow Jones Equity All REIT Index.
Many of the property assets held by REITs have turned out to be far better off than many had predicted during the crisis, and well-managed REITs have been able to pick up discounted properties or continue collecting healthy rents. This is no guarantee of their future performance, but so far these real estate trusts have surpassed many market observers' expectations.
Investment: Apple (AAPL)
Investment Return YTD: 17.31%
Beat the S&P by: 21.76%
Why it beat the market: Remember when Apple computers were the turtles of the tech race? Those days are no more as the creator of the Apps revolution (which has stayed nimble on the innovation scene despite its steep revenue growth) continues to bet on the digital and personal technology trends people will wait 6 hours in line to buy.
Apple is not only a firm that tends to beat investor targets for quarterly earnings and profits, but also one that lies at the centre of American corporate pride and accomplishment in this age of economic uncertainty. From laptops to smartphones to tablets, Apple has repeatedly hit the consumer sweet spot and the market has rewarded its stock so far with outperformance year-to-date.
Investment: As represented by the iPath DJ-UBS Coffee TR Sub-Idx ETN (JO)
Investment Return YTD: 27.58%
Beat the S&P by: 32.03%
Why it beat the market: Coffee has been on fire this year, and on the supply side it has been due to a combination of bad weather, a coffee-eating beetle gone wild, and perhaps erratic Arabica futures on obscure trading exchanges.
Still, the demand side of the equation has been supportive as well. Demand for coffee is surging from Emerging Market nations who are getting hooked on coffee's morning buzz. Brazil will consume a record 19.6 million bags this year, and China, which founded its first Starbucks branch in 1999, had 376 Starbucks as of April 2010.
Investment: As represented by the ProShares Ultra 7-10 Year Treasury ETF (UST)
Investment Return YTD: 27.74%
Beat the S&P by: 32.19%
Why it beat the market: The exodus from equities hasn't just been a short-term panic. For more than three years investors have been trading out of their stock mutual funds and investing in bond funds of all stripes. Moreover, in an economy fraught with volatility and deflation fears, many bond investors have chosen the apparent safety of U.S. Treasuries, ie. U.S. government bonds.
Sure, the U.S. fiscal picture looks worse than ever and the private sector may be de-leveraging at a quicker pace than initially thought, but if deflation does set in, wouldn't you at least like to get the principal back on your investments? This line of thinking has sent the 10 year treasury yield to under 2.5%, which means that treasury prices have enjoyed an enormous rally. (Bond prices move inversely to yields)
Just watch out should inflation pick up, or the U.S. economy grow decently going forward.
Investment: Baidu.com, Inc. (BIDU)
Investment Return YTD: 97.15%
Beat the S&P by: 101.6%
Why it beat the market: The Chinese stock market hasn't had a great year, but Baidu sure has.
It has helped that the Chinese are one of the world's most voracious consumers of the 'net, and Baidu is playing right into the money on this market. Although it faces some competition over its products and user base from the likes of Alibaba and Netease, Baidu wields a dominant share in China's burgeoning search engine market and will continue to reap the rewards of Google's ill-advised brinksmanship negotiations with CP officials by warding off industry competitors. After its last earnings report, the tech giant accounted for over 70% of China's search engine usage. Baidu has had a great year so far and this has supported the shares.
Going forward, Baidu will have to be ready for the possibility of increased domestic and foreign competition (could Google make a comeback?) and must continue to aggressively introduce innovative features for its Mainland users if it wants its shares to keep rising.