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Warning: 'Huge' Bubble Brewing in Bond Market

Sunday, 7 Nov 2010 | 11:08 PM ET

Investors should stay clear of U.S. government debt as there is a "huge" bubble developing in the bond market, warns Aaron Smith, managing director at Superfund Financial.

"Retail investors are buying up bonds like they are tech stocks in 1999… you're guaranteeing yourself a negative return," he told CNBC.

"(For investors) I think the best defense is a good offense and that means not buying bonds today, whether they are two years in duration or 10 years in duration," Smith said, responding to the Federal Reserve's plan to buy $600 billion of Treasurys, of which a large portion will reportedly be allocated towards two to 10-year bonds.

Going After Double Digit Returns
Investors should go after growth opportunities through adopting equity market neutral positions, says Aaron Smith, MD at Superfund Financial. He shares his investment strategy with CNBC's Chloe Cho & Yousef Gamal El-Din and Maithreyi Seetharaman, in this edition of Protect Your Wealth.

Instead, Smith recommends investors look to establish a neutral position in equity markets by holding long and short equity positions within the same sector or industry — a strategy among hedge funds which allows investors to offset exposure to broader market moves.

In addition, he notes that alternative investment strategies such as managed futures funds present solid opportunities for double-digit returns.

Comments? Questions? Send them in here.

Catch "Protect Your Wealth" on CNBC's Asia Pacific network every Tuesday on "CNBC's Cash Flow," Wednesday on "Asia Squawk Box" and Thursday on "Capital Connection."