With uncertainty building over where the economy is headed, some investors are jumping into new strategies hoping to ride out some of Wall...
NEW YORK — With uncertainty building over where the economy is headed, some investors are jumping into new strategies hoping to ride out some of Wall Street’s gyrations. But while exploring different corners of the market can reap benefits, no place is free from risk.
From commodity and currency funds to strategies aimed at profiting from volatility, investors are moving into areas or using plays that a decade ago were largely available only to professional investors. The opportunities can add a welcome dose of diversity to portfolios, though investors should understand where they are putting their money.
With Wall Street routinely-
having hiccups in the form of triple-digit swings in the Dow Jones industrials, it’s understandable that some investors are venturing into new territory.
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David Reilly, director of portfolio strategies at Rydex Investments, said the volatility and uncertainty have led some to new investment areas. “We’re seeing good growth in some of our newer alternative product suites,” he said.
The Rydex Managed Futures Strategy Fund has seen its assets balloon to about $400 million from $245 million at the end of 2007.
The fund tracks the Standard & Poor’s Diversified Trends Indicator, which attempts to capture price trends of various futures markets. The indicator is based on 14 commodity- and financial-futures sectors and is evenly balanced between the two.
Investors considering moving into new territory to round out their portfolios should seek answers from a financial adviser to determine whether it is wise, said Jeff Tjornehoj, an analyst at mutual-fund tracker Lipper.
“Some investors are using these opportunities very wisely,” he said. “They are allocating their portfolios into areas of the market that they were previously unexposed to. That can be good when used to proper amount. On the other hand, I get the sense that a lot of investors view these assets as the only opportunity out there so they are completely loaded up on commodities, for instance.”
And many investment areas or trading strategies are designed to account for only a small portion of a portfolio, not the bulk of it. The dangers of making big wagers should be clear to investors who remember the tech-stock meltdown at the start of the decade.
“If people are not seeing that what goes up may eventually come down, then they will have learned nothing from the last bear market,” Tjornehoj said.
He noted that not all alternative investments are suited for every portfolio.