Top Winners Whenever the Yield Curve Inverts

Markets went off the rails again in August 2019.

At the time, the 10-year Treasury bond yield slipped to 1.627%, which was below the 1.632% yield on the 2-year.  That was the first time that’s happened since 2007.

Even the yield on the 30-year bond just fell to an all-time low of 2.02%, which was below its former record low of 2.0889%.

Such a development in the 2/10 has occurred ahead of every U.S. recession over the last 50 years, sometimes leading by as much as 24 months, says Fox Business.  “For example, October, November of 2006, exactly one year before the Great Recession began, the 2/10 inverted.”

While investors are nervous, it’s not time to flee the market.

We have to remember the market is resilient.  It’s seen much, much worse.  We must also consider there are other ways to protect capital in this crazed market.

Three Top Ways to Protect your Portfolio

One, investors are pushing into volatility-based opportunities including the ProShares Ultra VIX Short-Term Futures ETF (UVXY), VelocityShares Daily 2x VIX Short-Term ETN (TVIX), and iPath S&P 500 VIX Short-Term Futures (VXX).

Two, investors are pushing into the safe havens of gold with stocks, such as Barrick Gold (GOLD) and Newmont Goldcorp (NEM), in addition to gold ETFs like the GLD.

Three, investors are also pushing into high-yielding REITs by way of closed-end funds.

In fact, one of the best investments you can make is in real estate investment trusts, or REITs.  That’s because they’re seen as having far less exposure to trade war conflict, and benefit from falling interest rates.  Plus, REITs, which pay out at least 90% of their taxable income in dividend payments to you, they yield 4% on average.

And four, after a yield inversion, investors push into utilities for safety, as demand for electricity and gas remain a steady need.  In addition, stocks like these offer higher dividends and cash flow.  Duke Energy for example has a yield of 4.2%.  Dominion Energy has a yield of 4.9%.

These are just some things to keep in mind, as the markets wobble here.

By: Ian Cooper of Wellington & Co. Hedge Fund Research

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