Three special asset class sectors can help stabilize wealth during bear markets.
The proof of this fact came in the first quarter of 2008. This period was hard on global equities. Concerns about falling home prices, growing foreclosures, higher energy costs and rising inflation, caused investors to dump shares…everywhere.
By the end of March 2008, global equities, as an asset class, had dropped for their fifth consecutive monthly loss. The last time this happened was in September 2001.
Yet there was a group of shares that held up. Many of these stocks did not even drop…they rose instead. Those that did fall are likely to rebound faster. These shares are in equities of three investing sectors I call the “holy trinity of investing”—water, timber, and alternative energy.
These sectors are more bullet-proof than most because big problems create big opportunity.
There are few problems as big as diminishing natural resources.
During economic downturns, the demand for energy and clean water grows. Yet their supply is dwindling. Timber is slightly different. We’ll get to that.
The point is, in bear markets, major fundamental trends remain strong.
Here are three specific examples…and all good shares to consider now.
One of those shares is the Danish, Vestas Wind Systems. This is alternative energy. Vestas makes wind turbines.
Jyske Bank recently issued a buy signal for Vestas Wind Systems, which is the largest wind turbine maker in the world.
The share price, when the bank issued the buy signal, was 459 Danish kroner. Jyske’s target price is 610 kroner. The bank feels that the company has:
1. Attractive relative valuation.
2. Good market conditions with a strong demand, which results in higher prices and better contractual conditions.
3. Better internal processes contribute to higher profitability.
From November 2007, when the current market downturn began, shares of Vestas, which is the world’s largest wind turbine manufacturer, have still risen. Our green portfolio had $51,000 of these shares. Their value rose through April 2008 to $59,458.
The other share in the green portfolio that rose smartly is Japanese, Kurita Water Industries. This is water purification.
Kurita is a 60-year-old Japanese company that provides water and environmental management including water treatment chemicals—wastewater treatment chemicals and equipment and systems for water treatment chemicals, including ultra-pure water production. The company operates in Japan, South Korea, China, Taiwan, Singapore, Indonesia, Thailand, the U.S., Germany, and Brazil.
The shares of the company have risen steadily over the past five years from 1,200 yen per share to 3,820 yen as of April 2008. We also had $51,000 of Kurita shares in our green portfolio that rose to $56,346 from November 2007 to April 2008.
The third sector in this economic holy trinity is timber.
Demand for wood is more in tune with the global economy’s rise and fall…but timber has had a historically low correlation to traditional asset classes. When other shares fall, timber is a unique diversification tool that may help reduce a portfolio’s overall volatility.
Timber is a commodity that has had a steadily rising price for 200 years, 100 years, 50 years, and 10 years. And a unit of wood, just the price of a piece of wood—in real terms—beat the S&P over most of the 20th century.
Wood is one of the few reliable negatively correlated asset classes because timber companies can withhold the forest. If the price of lumber is not good, timber firms do not log. There is no cost of storage and trees continue to grow and become more valuable.
One easy way to invest in timber is the Claymore/Clear Global Timber Index ETF.
This share is traded on the American stock exchange but holds timber shares around the world. The fund’s goal is to track the Clear Global Timber Index, which is composed of a basket of businesses that own or lease forested land and harvest timber for commercial use and sale of wood-based products, including lumber, pulp or other processed or finished goods such as paper and packaging.
This fund holds numerous shares around the world. No one share represents more than 5% of the portfolio so you gain a global portfolio of timber related shares.
As global consumers, it makes sense for us to be global investors. Investing in the holy trinity enhances this protection