Where are the crowds right now and should investors stay away or join them? Nicholas Colas, chief market strategist at ConvergEx, discussed his views.
“Gold has got to be the most crowded trade in the universe right now,” Colas told CNBC.
“Gold traditionally works very well during inflationary periods, and we haven’t seen a lot of inflation yet—it’s up about 1 percent for the year, so it’s treading water and waiting for that news to come out.”
Colas said gold shouldn't be an overweighted part of investors' portfolios because it’s “too concentrated” a bet.
Instead, the “best” crowded trade for investors right now is the long volatility trade, Colas suggested.
“It hasn’t played off yet, but the VIX* has ranged from 10 to 80 over the last 15 years,” he noted. “We’re at 17 to 18 right now and in the worst-case scenario, it goes to 10, the better-case scenario it goes to 20 to 25 and so I think that’s a very logical sound trade.”
*(CBOE Volatility Index)
Colas said he prefers to be long on the health-care trade.
“They’ve been very beaten up, a lot of the names are very reasonably priced and some even pay very good dividends,” he said of the sector. “And it’s a very crowded trade on the outside, meaning people aren’t invested in health care.”
Colas’ Favorite Crowded Trades:
Long Gold
Long Volatility
Short Long-Dated U.S. Treasurys
Short the euro & British pound
Underweight the U.S. Health Care Sector
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CNBC Data Pages:
- Track the VIX Now
- Dow 30 Stocks—In Real Time
- Oil, Gold, Natural Gas Prices Now
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More Market Intelligence:
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- Market Tips: Stocks to Flatline, BRICs to Hit Wall
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CNBC Slideshows:
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Top Dow Laggards (as of this writing):
Travelers
AT&T
Walt Disney
Boeing
Merck
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Disclosures:
No immediate information was available for Colas or his firm.
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