Portfolio Management: Why You Should Own “Counter-Cyclical Stocks”
by Dr. Mark Skousen, Contributing Editor
Thursday, September 3, 2010: Issue #1338
Are you managing your investment portfolio properly?
If it doesn’t include some counter-cyclical stocks – or what the pros call “non-correlated investing” – then you should ensure that it does.
In my Forecasts & Strategies “high income” portfolio, I’ve recommended two such stocks. And they’re effective because they invariably rise in value when the stock market crashes or goes into hibernation.
Here’s what they are and how they work…
The Fund That Never Loses Money
First up… the Aberdeen Asia-Pacific Income Fund (AMEX: FAX), which I call “the fund that never loses money.”
Okay, maybe not “never,” but the fact is, FAX has yet to lose money over a 3-year, 5-year, 10-year, 20-year, or even 25-year period (when it first traded in 1986).
FAX invests in Australian, Asian and emerging debt in U.S. dollars…
- 40% in Australian bonds.
- 41% in foreign bonds, denominated in U.S. dollars.
- 19% in Asian bonds.
Almost 70% is invested in foreign corporate bonds in order to gain heightened returns and all are investment grade, too.
Here are the annualized and cumulative returns so far on FAX:
| YEAR RETURNS | ANNUALIZED | CUMULATIVE |
| 1-YEAR | 16% | 16% |
| 3-YEAR | 6.1% | 19.5% |
| 5-YEAR | 6.8% | 38.8% |
| 10-YEAR | 201% | 11.7% |
| 25-YEAR | 671% | 8.8% |
Two other positives…
- The fund is currently selling slightly below its net asset value.
- The dividend is steady at 3.5 cents per month per share, for an average annual yield of 6%.
- It boasts a low beta – under one. The Dow Jones Industrial Average is twice as volatile as FAX.
So how did FAX do during the financial crisis of 2008? Although it fell 30%, that was less than the Dow and it continues to pay its steady 3.5-cent monthly dividend. More importantly, though, it’s quickly recovered and it’s up almost 20% over the 2008-10 period.
No wonder commodity guru Dennis Gartman calls FAX his favorite place to park money.
The Stock That Rises When The Dow Tanks
Second, there’s Annaly Capital Management (NYSE: NLY), a leveraged real estate investment trust (REIT).
On the last four occasions that the stock market has fallen sharply (June 4, June 29, August 11, August 30), Annaly actually rose in value. And during the “Flash Crash” (May 6), it declined only slightly.
So why is Annaly Capital a safe haven, given that it’s a leveraged mortgage REIT? It’s probably because it’s tied to government-guaranteed funds with Freddie Mac and Fannie Mae.
Plus, it raised its dividend in the past quarter and has seen its interest income and core earnings rise recently. Annaly is able to pay above-average dividends by leveraging its portfolio of mortgage-backed securities from Fannie Mae and Freddie Mac.
There’s virtually no risk of default on its investments, but the biggest worry is higher interest rates. However, with unemployment still stubbornly high (another 54,000 U.S. jobs lost in August – the third straight month of job losses) and inflation low, the Fed announced that rates will stay low for the foreseeable future.
Good trading – AEIOU,
Mark Skousen
Related Investment U Articles:
- Why REITs Are One of the Top Sectors for Income Investors Right Now
- Three of the Best Dividend Investments in the World
- The Fed Raises the Discount Rate: What It Means For You
- What Albert Einstein Would Invest in Today
- Asia Triple Play for 2012: Income, Quality and Growth
6 Responses to “Portfolio Management: Why You Should Own “Counter-Cyclical Stocks””
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I couldn’t agree more, I have a significant amount of $$ in FAX and it pays my monthly bills … it always seems to be low on the investment radar, that is, until guys like you write articles like this (ha ha). I swing trade FAX to enhance my gains as it seems to predictably swing up-and-down, anything above NAV I move out, anything significantly above, I get back in.
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Woops, I mean “significantly below”, I get back in.
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This is the best, most helpful article that I’ve seen in over a year. Thank you for such useful, timely information.
C.B.
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Excellent. Probably one of the best analysis pieces I’ve read in quite some time, very useful.
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I enjoy articles such as this. How can I get my son and daughter to recieve them?
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You remarked that ANNALY (NLY) raised its dividend this past quarter. From $.68 to what…and in what quarter is it going to be paid?
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