How to Play the Market This Year

It’s a trader’s market so far this year and quick-witted investors are loving the volatility. The year began in turmoil with a precipitous drop of 10.50% by the beginning of February. But then the market recovered and began an upward climb, eventually canceling out those losses. It is currently up about 1.80%.

The policy of the Fed has been somewhat misleading for investors as well. Coming into 2016, it seemed that further rate hikes were just around the corner, and statements released by Janet Yellen confirmed those thoughts. Yet as the market began to fall and inflation refused to budge, the Fed flipped its views. Now the markets aren’t pricing in a rate hike until December at the very earliest.

As a result, yields have fallen as the year goes on – down 18% to just 1.87%. Only precious metals have had steady, solid gains with gold up 22.50%, and silver up more than 27%. The U.S. dollar has weakened, while industrial commodities like aluminum and steel have begun to see gains for the first time in more than a year.

There are many currents churning underneath the waves and plenty of moves investors have to boost returns between now and the end of the year.

Mutual Funds That Are in the Right Position to Play This Market

Precious metal funds have had a red letter year so far, and that streak doesn’t look like it’s going to end anytime soon. Investors can’t find safe gains in bonds and Treasuries with yields so low, making traditional safe-haven assets an attractive place to find returns.

Take a look at the Vanguard Precious Metals and Mining Fund (VGPMX). The fund is up an astounding 67% year to date and with an expense ratio of just 0.29%, investors are getting away with a steal. Comprising 70 stocks, this fund has a wide diversity of miners that gives investors a broad exposure to the sector.

Low yields from conservative assets like bonds and Treasuries make dividend funds attractive for investors who are looking to minimize risk while still producing returns. The AllianceBernstein Equity Income Fund (AUIYX) is up a little over 3% year to date – nothing jaw-dropping, but still better than the S&P 500. The fund carries an expense ratio of 0.73%, which is line with its peers, and invests primarily in large-cap stocks that carry dividends.

For investors who aren’t looking for a fully diversified mutual fund, the American Century Utilities Fund (BULIX) is an attractive pick up. It’s up nearly 17% year to date, and with a 0.67% expense ratio this fund is one of the best values in its class. The fund holds a relatively diverse array of utility stocks in its portfolio including AT&T, PPL Corp., and Consolidated Edison.

The Bottom Line

The stock market has yet to send clear signals whether it’s going to continue going up, reverse course, or maintain its current equanimity. Right now, mutual funds rife with high-yield stocks are some of the best gainers, although sector-specific funds in utilities and consumer staples could be big winners as well. Finally, value-oriented funds, while still somewhat unimpressive compared to other options at the moment, are in a good position to outperform the market as the year goes on.