A Bet for Bond Bears...

01/07/2005 12:00 am EST


J.D. Steinhilber

President, Agile Investments

J.D. Steinhilber is president of Agile Investments, which specializes in developing portfolios based on exchange traded funds. For his Top Pick, however, he goes with what he calls an "unconventional security"a fund that benefits from rising interest rates.

"As a result of three years of an historically easy monetary policy characterized by negative real short-term interest rates, it is difficult to identify an undervalued asset class. This is particularly true now that the equity markets have turned in a strong rally in the final two months of 2004. As we enter 2005, asset classes appear to range from fully valued, in the case of stocks, to overvalued, in the case of income-oriented investments such as bonds and REITs.

"Since no asset class appears priced to offer a double-digit return opportunity in 2005, we're choosing an unconventional security as our top pick for 2005 the Rydex Juno Fund (RYJUX ). This is a specialty mutual fund that provides returns opposite to the returns of the 30-year US Treasury Bond. In effect, it is a no-load mutual fund that offers a short position on the long bond.

"With bond yields near 50-year lows, spreads to inflation 1.5% below their historical average, record fiscal deficits being financed by foreigners at an unsustainable rate, and the carry trade becoming less viable with each Fed Funds increase, long-term bonds appear to be living on borrowed time. If the long-bond yield rises at least a full point in 2005, as we expect, RYJUX will return approximately 20%."

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