2 Funds for Tumultuous Times

05/02/2012 8:00 am EST

Focus: FUNDS

Ron Rowland

Editor, All Star Fund Trader

As world economies continue to writhe through their issues, the US remains a beacon of relative stability...and that is helping certain strategic sectors, observes Ron Rowland of All-Star Fund Trader.

The first-quarter stock rally was accompanied by a rise in Treasury rates, while April's equity correction saw rates falling. The ten-year yield stayed below 2% for six consecutive market days and stands at 1.96%.

On the surface, it might appear that loaning your money to the US government brings very little benefit at current rates. Yet investors around the globe keep throwing money at Washington. Why?

The key attractions for Treasury bonds are liquidity and safety. The T-bond market is efficient, always open, and can handle billions of dollars in the blink of an eye.

And for all the fiscal problems you read about, the bottom line is that debt doesn't get any more "sovereign" than US Treasury paper. Recall how last year's S&P downgrade had so little impact on interest rates.

European and Asian investors, given a choice between trusting their own governments and trusting Washington, seem more inclined to trust Washington right now. The result is lower interest rates here. The Federal Reserve, keenly aware of this balance, is unlikely to rock the boat.

The continuing Treasury strength makes us a bit skeptical of the stock-market bounce. News from Europe, economic data, and earnings reports will give us a better picture this week.

Fund Strategy Updates
The semiconductor industry appeared to hit a wall in mid-April, at least in terms of price performance.

Funds like Fidelity Select Electronics (FSELX) and Rydex Electronics (RYSIX) posted losses in excess of 2% even as the broader market rallied. Most of the drop occurred on April 20, when Sandisk (SNDK), Altera (ALTR), Micron Technology (MU), and others took it on the chin.

Meanwhile, the Health Care sector did well, boosting our positions in SPDR Select Health Care (XLV) and Fidelity Select Health Care (FSPHX). Other groups with higher relative strength rankings include medical delivery, leisure, real estate, and utilities.

To better align our strategies with current market trends, we will exit from Fidelity OTC Portfolio (FOCPX), Fidelity Select Electronics (FSELX), and Rydex Series Trust Electronics (RYSIX), and move the proceeds into Fidelity Select Medical Delivery (FSHCX) and Rydex Real Estate H (RYHRX).

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