“When the rest of their wealth seems to be melting away, people do favor something they can put their hands on.” As for utilities, these equities offer investors a solid defensive play since consumers use energy in good times and bad4and they provide some of the best dividend yields. Our list of 22 stocks also shows that Vornado Realty Trust (NYSE: VNO) should be a real estate pick that will flourish in the current low interest rate environment. Dynegy (NYSE: DYN), from the utility sector, should capitalize on the increasing demand for electricity and natural gas.
It took longer for the other three sectors to produce solid gains. Take financial services. It averaged an anemic -2.90% return after six months, but then posted gains of 5.98% after 12 months, and 38.13% after 36 months. Tjornehoj says the financial services area is slower to recover because of its sensitivity to interest rates and credit quality.
Natural resources and technology showed negative returns at both the six- and 12-month marks. But those who stuck to their guns witnessed respectable performances. After 36 months, technology and natural resources were up 28.03% and 17.58%, respectively. The natural resources sector, which includes forestry, paper products, and energy companies, is heavily influenced by energy prices, which shot up like a geyser last year before sliding. As for tech, it hasn’t followed any fundamental patterns since the rally of the ’90s. Investors may want to look at financial services companies such as Alliance Capital Management (NYSE: AC), which is benefiting from low interest rates and a 6% dividend that is attracting investors.
Or, consider a firm such as Boeing Co. (NYSE: BA), which yields exposure to the technology sector with the strength of the government’s focus on the defense industry.
REPOSITION YOUR ASSETS
So what’s your next step? If you’re sitting on the sidelines, get back into the market. “I’d say it’s probably not a bad time to start moving out of the defensive areas,” says Tjornehoj, “because once we start to get even a sniff of a positive catalyst, as far as corporate earnings go, we’re going to see people start getting back into the market more broadly than they’ve been over the last year and a half.”
Rather than relying solely on statistics from past bear markets, Iva Funderburg, senior equity research analyst at Detroit-based Alpha Capital Management, says reposition your portfolio in line with industry trends to take advantage of the coming rally. Like most analysts, she believes the economy has begun to stabilize. “I think we have at least one more [bad] quarter, then I think we [will] start to rebound a bit,” she says. “When people have cash and are more confident about the economy, they take that cash and buy [nonessential] items such as cosmetics, general merchandise, clothing, and footwear. That’s where you may see the growth.”
To bear out her assertion, Funderburg examined how several sectors performed against the Standard & Poor’s 500 index after the 199031991 bear market. She found that the S&P 500