3 Funds to Diversify Your Portfolio

07/25/2011 9:40 am EST

Focus: FUNDS

John Mauldin

Chairman, Mauldin Economics

Investors should use caution in this market environment, John Mauldin tells Kate Stalter. In today's interview, Mauldin mentions three funds he views as good choices to help retail investors diversify and take advantage of current pockets of strength.

Kate Stalter: Today we are speaking with John Mauldin, who is the president of Millennium Wave Investments in Dallas. Thanks so much for joining us today.

John Mauldin: It is good to be here. Thank you.

Kate Stalter: I wanted to start out by asking your view on the current market conditions, and what you believe individual investors need to be aware of these days.

John Mauldin: Well, I don’t think it comes as any surprise if I say I think that the markets are probably about as volatile as any time we have seen it.

I think individual investors should be applying a certain amount of caution. We have had a very great run-up in the stock market. The risk-to-reward that we are seeing today is not as great as it was in other times.

The US economy itself is not growing very rapidly. We will be lucky to see anything over a 2% number for the second quarter and the data that is coming in, as we are watching July, does not show us strengthening a great deal.

That is not the environment for major bull markets. So I think it is more of a time to be cautious, more of a time to think about the return of your money as opposed to the return on your money.

So, it is a time for trading strategies, commodity funds, and fixed income. If you are of a mindset and you have some cash, if you look for really good real estate deals that you can then turn around and rent out, you can create your own income portfolio.

There are short sales out there. There are sales of property that you can buy at much reduced prices, put a little work into them and turn around and rent them and get a reasonable return on your money. So, I would consider something like that.

Kate Stalter: You’ve mentioned a few different asset classes here. Any particular global regions or other sectors that you haven’t mentioned, which you believe are showing strength at the moment?

John Mauldin: Well, the emerging markets have been showing a great deal of strength. I would again be cautious now, because we have had such a run-up. It is always a little dangerous to start talking about getting into something after it has had a big run.

Long term, I think it is the emerging markets where we are going to see the biggest potential gains over the next decade.

Kate Stalter: Any sectors or regions that you think individual investors should avoid at the moment?

John Mauldin: I would avoid long-only indexes. On the S&P 500, it is time to be a rifle shot, not using broad indexes and jumping broadly into the market. No, let’s figure out what is happening and move into the markets a lot more cautiously.

Kate Stalter: What are some of the investment vehicles that you are putting clients into these days to meet some of these objectives?

John Mauldin: Well, we have a lot of money in hedge funds, and in commodity funds, but not long-only commodity funds. Commodity funds that can go both long and short, so they are more commodity trading funds, if you will. We have been pretty happy in general with the results that we’re getting from those types of funds.
Kate Stalter: Can you say what any of these funds in particular are?

John Mauldin: Altegris has a fund. It is the Altegris Managed Futures Strategy Fund (MFTAX). There is another fund that has been launched, the Altegris Macro Strategy Fund (MCRAX).

It is a fund of global macro traders, and both of these funds are basically funds of hedge funds, funds of commodity traders. They are world-class managers, and it’s a way for the smaller trader, the smaller investor, to be able to access managers who are truly world class.

Kate Stalter: Any other funds, or stocks, or examples of investment vehicles that you believe individuals should take a look at right now?

John Mauldin: Well, there is another fund, that is CMG Absolute Return Strategies (CMGTX), and it is a diversified trader fund. It is a fund of traders, as opposed to a fund of commodity traders or hedge funds, and it is a very, very good fund.

About 40% of it is with market timers in the various stock markets. 30% is in fixed income traders. There is a currency trader and a gold trader in it, so it’s a fairly diversified group of traders, and their goal is to be able to trade the markets and make money.

Read more of John Mauldin's Thoughts from the Frontline here…

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