Do you need Negative Beta Mutual Funds in your portfolio in 2012? Probably So.

What are Negative Beta Stocks?

Stocks that usually follow the stock market indexes are said to have a beta of one (1.0). Stocks that are more volatile are said to have a beta of 1.5 or 2.0.  However, some stocks do the opposite of the market are said to have a negative beta or a beta of -0.5, -1.0, etc. Some examples of traditional Negative Beta stocks and financial instruments are companies that make water purification plants, gold, silver, bonds, infrastructure stocks, portable generator companies, battery manufactures, and basic food stuff stocks (sugar, flour, steel).  Most anything you would need in a disaster like Japan in the spring of 2011 or after Katrina.

Why are Negative Beta Stocks or Negative Beta Funds important?

Protect your portfolio in a way that just gold can't.

Anytime there are economy affecting manmade events (terrorist or lack of confidence in geo-political policy) or natural disaster events (Japan’s earthquake, an earthquake on the west coast, pandemic, a major volcano stopping air traffic, etc…) most stocks will go down.  Sales for stocks in the Negative Beta category will in general spike upward when an event happens. Thus cutting your overall losses in a general market downturn.  This is important to hedgeagainst a catastrophic lifestyle affecting loss in your portfolio.

Why not just buy gold or bonds?

Gold does two things. It goes up and it goes down. Right now it’s up. In my opinion, it’s better to have gold in a portfolio rather than betting the ranch on gold. That is almost the same as going to Vegas and betting on black or red on the roulette wheel.  There are always exceptions, but remember, the mutual fund managers and big players have better access to information than you do in most cases than you do. They can also react faster. It’s hard to stay ahead of them on individual stocks and commodities. Bonds, in general, are even a surer midterm loser in today’s market. Since bonds have an inverse relationship to interest rates and the effective interest rate are near zero percent. The price of bonds, in theory, can only go down. Junk bonds are paying a much higher interest rate because they have to pay more to get investors to assume the higher risk of default.  But the AAA rates bonds are near zero percent.  The reason for the uproar in July of 2011 on the US bonds rating being reduced from AAA to AA is that the US would have to pay out more in interest (all things being equal) to get people to buy the bonds.

Conclusion

Mutual Funds with Negative Beta family of securities offers a financial solution to provide something that acts like a “poor man’s hedge fund” to protect a portion of your portfolio. Putting between 10% to 20% of your portfolio into a negative beta fund may be a wise investment based on the geo-political and stream of natural disaster. Remember, something bad is always going to happen.

Mike Dunn

An entrepreneur at heart, Mike Dunn launched his first computer training and software development business when he was just 21 years old. With Bachelor’s degrees in both Finance and Information Systems with minors in Economics and Psychology from Appalachian State University, Dunn embarked on a sales career for AT&T/BellSouth. He soared to the top of his field, matching customers’ corporate goals and objectives to bleeding-edge technology. He has leveraged his 20+ years of leadership in the sales field to help others succeed through his training company, PowerfulSalesSkills.com. As a thought leader in Internet-related finance, Dunn has been at the forefront of recognizing and acting on game-changing strategies. He melds his expertise in sales and finance in order to quantify return on investment for what Nassim Taleb termed Black Swan Events. Dunn’s current project, Mutual Fund Marketing Services.com, focuses on helping Mutual Fund Companies leverage Social Media/Call Center and Mutual Funds sales best practices into a powerful combination to help mutual fund companies achieve and exceed their corporate metrics and goals.

Mike Dunn – Senior Partner – Mutual Fund Marketing Services.com   Copyright 2012