What the experts say
Finally, some winners; Cut off from your credit card; Funds that hedge their bets
Finally, some winnersAt first glance, this year’s bear market seems like a continuation of 2008, said Paul J. Lim in The New York Times. But look closely, and you’ll notice a key difference. “While investors lost significant sums in every sector last year, they’re finding some pockets of opportunity now.” The technology, health-care, energy, and utility sectors have seen modest gains, even as the rest of the market gets pummeled. In fact, all four of these sectors saw year-over-year profits increase in 2008—and investors have taken note. “It would be premature to conclude that panic selling has ended and that fundamental factors are now the main determinant of stock prices.” But investors’ embrace of these sectors may be a sign of better days to come. “To the extent that this shows some semblance that fundamentals are starting to matter again, that’s a good thing,” says James W. Paulsen, chief investment strategist for Wells Capital Management in Minneapolis. Cut off from your credit cardMore consumers are resisting the urge to charge everything to their credit cards, said Kelli B. Grant in SmartMoney. That’s a good decision for them—but card issuers don’t always like it. In some cases, cardholders are being told to use credit or lose it. Most major issuers “have been slashing credit lines and closing the accounts of those who don’t spend on their card regularly.” Issuers say that inactive accounts can unnecessarily open the doors to fraud and credit risk. “For consumers, however, account closings can be devastating—especially to their credit score.” That’s because your score is based in part on the ratio of outstanding debt to credit. If a line of credit is cut off, your ratio of debt to credit suddenly becomes much higher. What to do? “The only way a cardholder can stop their account from getting shut down is to start spending again”—in small amounts.
Funds that hedge their betsWhile hedge funds got hammered in 2008, some hedge-like mutual funds managed to post “respectable” results, said David Landis in Kiplinger’s Personal Finance. Such “long-short” funds try to limit bear market losses by short-selling stocks or using other hedging strategies. “We looked at 16 no-load funds in this category that have been around at least a year and found that all but one beat the S&P 500 in 2008.” None of the funds actually made money, but Akros Absolute Return and Nakoma Absolute Return lost only 3 percent and 4 percent, respectively. Not bad, considering that the Standard & Poor’s 500 was down 37 percent. To reduce portfolio risk, it might make sense to put a small chunk of assets in such a fund. Just don’t get carried away. “Because of their hedging strategies, all of these funds are likely to lag the stock market when the bull returns.”