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Tired of Stocks and Bonds? Try These Four Alternatives
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CNBC.com Senior Writer
With the stock market bland and the bond market bubbling, investors may have to search elsewhere in the months ahead for return.
Key Points
Among the most popular are grains, foreign currencies and emerging markets.
The Standard & Poor's 500 [.SPX
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] literally did nothing all summer. Since the so-called Death Cross on May 27—when the 50-day moving average crossed below the 200-day—the broad market gauge has bounced around but held close to 1,100.
The bond market, meanwhile, has continued its meteoric rise, but so much so that many analysts are saying it has overheated and is in danger of collapsing.
So with the market's two most common options presenting challenges if not outright deterrents for investors, the temptation toward alternative plays becomes greater.
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"The stock market's dead. Nobody's interested in it right now," says Darin Newsom, senior analyst at DTN, a commodities firm in Omaha, Neb. "Money is flowing back and forth through the commodities until such a time as the Dow Jones straightens itself out and we start seeing more bullish signs."
Here, then, are four alternative investment strategies gaining traction these days:
1. Going With the Grains
Gold's [US@GC.1
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] 8 percent gain since July 27 has been hard to miss, but grains also have done well in the commodities market.
In particular, corn has been one of the big stories as global shortages in Russia and Eastern Europe raise demand for US feed and push the grain back to highs it hasn't seen since June 2009.
Corn prices [US@C.1
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] have jumped an eye-popping 39 percent since hitting $3.33 on June 29, and Newsom thinks the run is far from finished. He says open interest futures contracts are nearing the volumes of 2008, when corn went parabolic and sold for as high as $7.79 a bushel. The government has a crop estimate release on Friday that could help shape the market.
"You have strong investment buying coming in. You have strength in underlying fundamentals, particularly globally," he says. "So it's very supportive of the market if things continue down this path."
Investors can play corn either by buying contracts on the open market, or through a growing crop of exchange-traded funds for agricultural commodities.
The Teucrium Corn Fund [CORN
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] debuted in June and seeks to replicate the moves of three corn futures contracts. Also, iPath has two commodities funds with significant corn weighting—the Dow Jones UBS Grains [JJG
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] and Dow Jones UBS Agriculture [JJA
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]—while Power Shares offers its Agriculture Fund [DBA
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], which is weighted about 12 percent with corn.
2. Forex, Part I: The Awesome Aussie
Speaking of eye-popping numbers, the Bank for International Settlements set off a shock-wave of its own last week when it released its three-year survey of foreign exchange activity. The review found that currency trading swelled to $4 trillion per day, a stunning 21 percent rise from April 2007.
Spot transactions drove nearly half the growth, the BIS said, noting that such trades now account for 37 percent of total forex movement.
Australian and Canadian dollars were among the leaders driving the increased currency trading, and many analysts expect the Aussie, backed by comparatively high interest rates, could be trading even with the US dollar [AUD=X
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] soon.
"Admittedly, fluctuations in the value of the Australian dollar against the US dollar have historically been closely tied to fluctuations in commodity prices, and we generally expect the latter to fall back over the next year or so," John Higgins, senior economist at Capital Economics in London, said in a recent research note to clients.
"Nonetheless, we think interest rates in Australia are likely to rise by much more than markets currently expect," he continued. "If rates in the US also remain close to rock-bottom—as we suspect—such an outcome could push the Australian dollar up, not down."
The Australian dollar is the fifth most-traded currency on the foreign exchange, which is led by the US dollar.
Data is a real-time snapshot *Data is delayed at least 15 minutes
