If you’re happy to do as well as the overall market, no better and no worse, read no further. Put your money in low-cost index funds and forget about it. It’s not a bad strategy at all.
But it’s not for everyone.
Some people want to follow the road less traveled. They’re willing to “speculate to accumulate,” as the old saying goes. They’re willing to take more risk in the hope of doing better. Don’t scoff. Many will fail, but many will succeed.
You can’t beat the market if you do the same as the market. And some of the best opportunities can be found by going against the crowd, and looking at the assets everyone else hates.
Looking at assets that other people may hate is a “very sound strategy,” says Rob Arnott, chairman of fund advisory Research Affiliates based in Newport, Calif. It probably works six years out of 10, he says.
There’s just one problem, he says. “When it doesn’t work, clients really hate you.”
An example of when it works? Try 2018.
According to index data company MSCI MSCI, +1.29% the world index of global stocks lost 8.2% last year.
Among the major regional markets, the January 2018 Bank of America BAC, +1.72% survey of global fund managers said the least popular was the U.S. Yet in the end, the U.S. performed best of them, with the MSCI U.S. index losing 4.5%.
Meanwhile, some really unpopular markets did even better. Widely shunned Russia? The MSCI Russia index rose 0.5%. And unloved Brazil? The country’s MSCI index ended even in U.S. dollar terms.
The S&P 500 SPX, +0.85% index of big U.S. stocks lost 4.4% when dividends are taken into account, according to FactSet.
MarketWatch contacted Refinitiv, the stock market data company, to find the 10 companies that began 2018 with the worst overall rating among Wall Street analysts. Their average performance? Up 1.9%.
So who hates what today? Where are the most unpopular assets?
Here are five assets, or groups of assets, that may be worth a look:
1. U.K. stocks
U.K. equities are not as popular as they once were because of all the turmoil and uncertainty around Brexit, according to the latest Bank of America Global Fund Manager Survey. U.K. equities are the biggest underweight among Fund Manager Survey members, the authors report, after polling 174 money managers around the world with $513 billion in assets under management. Simplest picks: The iShares MSCI United Kingdom ETF EWU, +0.68% or the more volatile iShares MSCI United Kingdom Small-Cap ETF EWUS, +0.26% .
2. European stocks.
The other partner in the Brexit row, the European Union, is also on the money managers’ unwanted list, according to Bank of America. Not only because of Brexit, but because of the slowdown in the region’s economy, and worries about populism and fiscal stability in Italy and elsewhere. Meb Faber, strategist at Cambria Investments, reports that on his most recent list of the world’s markets, “the cheap stuff is still dominated by Europe.”
Investors can buy the iShares MSCI Eurozone ETF EZU, +1.56% or include the eurozone and the U.K. together in the Vanguard Europe ETF VGK, +1.08% .
3. These 10 big U.S. stocks
According to Refinitiv, the S&P 500 stocks with the lowest overall analysts’ ratings are Campbell Soup CPB, -1.38% Public Storage PSA, +1.49% Franklin Resources BEN, +0.83% South Company SO, -0.96% Chesapeake CHK, +1.09% Kimberly Clark KMB, -2.98% Torchmark TMK, +0.92% Consolidated Edison ED, -2.20% Western Union WU, +0.28% and TripAdvisor TRIP, +0.95% .
4. Foreign currencies and gold
Everybody loves the U.S. dollar: It rose 7.5% last year when measured against a broad basket of currencies, and the bet it will go still higher is among the most popular and “crowded” trades, money managers say. Yet they also admit it now looks the most overvalued against other currencies since June 2002 — when it then fell 30% over the next six years.
Possible bets against the dollar: Gold, such as the SPDR Gold ETF GLD, +1.46% the euro, via the Invesco CurrencyShahres Euro Currency Trust FXE, +0.93% or a basket of emerging market currencies through the WisdomTree Emerging Currency Fund CEW, +0.30% .
5. Industrial stocks
Spreading gloom about trade wars and an economic slowdown has dumped the stocks of major industrial companies on the unwanted list. The industrial stock market sector includes a broad range of companies and industries that are sensitive to the economy, from car manufacturers and defense contractors to airlines, distributors and even professional services. It’s now by far the most unpopular with global money managers, reports the Bank of America survey.
That could leave it open to a quick rebound if the gloom lifts. Simple picks include the State Street Industrial Select SPDR Funds XLI, +1.27% which tracks U.S. industrial stocks, and the global iShares S&P Global Industrial ETF EXI, +1.43%
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