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Who can understand this market?
In the last few weeks euphoria about global growth has been transformed into fear of recession. After peaking in mid-July, the S&P 500 Index ($INX) plunged 9% before rebounding for a year-to-date gain of 4.65%, as of Sept. 14.
Angelo Mozilo, chief executive of mortgage giant Countrywide Financial (CFC, news, msgs), told CNBC, "I can't believe that when you're having a level of delinquencies, foreclosures -- equity has disappeared, equity is gone, the tide has gone out -- that this doesn't have a material effect on the psyches of the American people and eventually on their wallets."
But as today's market unravels, tomorrow's is being knit. Two long-neglected skeins are going into the new market's fabric: bonds and large-cap growth stocks. They share an attribute investors suddenly prize: less risk.
For at least five years, investors have chased cyclical companies from the oil patch to Wall Street, eager to share in the gains they were reaping from a roaring global economy. "That's a temptation to be avoided now," says Joseph Biondo Jr., co-manager of Biondo Growth Fund (BIONX), up a sparkling 9.5% this year.
"I'm finding pretty reasonable valuations for solid growth companies that have less dependence on a really strong economy," he says.
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Big-cap growth funds, which have delivered returns a third less than their value rivals for five years, are suddenly beating them by a ratio of 2-to-1 -- market-stomping year-to-date gains of 6.4% for growth versus 3.3% for value.
And with a majority of analysts convinced the Federal Reserve will shortly begin cutting interest rates, bonds have rallied. The average short-term government bond fund spurted 1% in the last month and long-term government funds more than twice as much. The average inflation-protected bond fund is up 3.5% this year, trouncing most stocks.
Well-diversified investors are already enjoying these gains, and that's why diversification is so important to investment success. But most of us are probably light on both of these groups, because value and foreign stocks have done so well for so long. It's time for us to catch up to this wave.
Rewarding consistency
Biondo Growth well illustrates the shifting sensibility of stock investors. Biondo Investment Advisors is a boutique growth manager that has operated in the Delaware River village of Milford, Pa., since 1991. It manages $350 million in private accounts and $50 million in the fund, which it launched in May 2006.Biondo is an all-cap manager, but the fund is predominantly large-cap because that's where the firm has found the best values over the last 18 months.
Continued: Filled with big earners
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