How to Capitalize on Down-Markets, Position Your Portfolio for What’s to Come

The late Steve Jobs has quoted Canadian hockey legend Wayne Gretzky as saying:

“I skate to where the puck is going to be, not to where it has been”

At no time is this saying more appropriate than it is in today’s turbulent markets.

Source: stockcharts.com

Individual investors and portfolio managers are looking at some of the biggest market declines since March 6, 2009, when the DOW hovered at 6,626. In hindsight, had the “average” investor looked at where the DOW had been on that day and thrown in the towel, instead of where it would have been today (24,000+), the 2009 financial crisis could have been a lot worse for many investors and money-managers.

The Silver Lining

To put things in context, that jump from the 2009 lows to today, represents an upside of over 262%! Markets have a tendency of going down and then rebounding again. And despite what some pundits have labeled as a “rout” over the last few days, there’s plenty of sunshine behind the seemingly dark clouds:

  • Joblessness seems to be waning in the US
  • There are even green shoots of wage growth emerging
  • Corporate earnings are robust
  • The corporate investment climate seems to hold lots of promise post the tax reforms

There’s even good news from Europe and Asia, where economies have been steadily rebounding. So, what’s not to love about a downturn like we are witnessing right now? The question however is: How can you benefit from it?

Plays That Could Work

In conditions like this, what could be some great strategies to employ, that would not only capitalize on the recent “rout”, but also position your portfolios for what’s to come? Here are two suggestions:

1) It’s all about housing

There’s no doubt that where the puck has been recently in the housing market, isn’t very comforting. But remember what we’re trying to do here: Looking to where the puck will land soon!

Source: Stockcharts.com

Look at real-estate/housing related names like iShares U.S. Home Construction ETF (BATS:ITB), with its amazingly low 0.44% Expense Ratio. YTD it’s been down nearly 9%’; but look at its longer-term prospects (where the puck will land!). With a resurging U.S economy, and wage growth seeming to pick up, incomes are set to rise.

In the years to come, this is likely to cause many Millennials to re-think their strategy of either renting or living with friends and family…and they will think about owning their own homes. They’ll soon flood the housing market…and that’s where the opportunities lay for ITB components like Home Depot Inc (NYSE:HD), Sherwin-Williams Co (NYSE:SHW) and Lowes Companies, Inc. (NYSE:LOW)…amongst others.

2) It’s all about infrastructure

If you are interested in longer-term trends, then you’ll easily spot what’s happening with migrating populations, especially in resurging economies like China and India. The middle-class is booming, and urbanization is transforming their economies. Closer to home, the U.S is having an open discussion about what we should do about our own aging infrastructure. Any long-term infrastructure spending bill could add fuel fire to stocks of infrastructure-related companies.

(GHII) Guggenheim S&P High Income Infrastructure ETF YTD Chart

Global Infrastructure plays like Guggenheim S&P High Income Infrastructure ETF (NYSEARCA:GHII) are down by over 6% YTD, but the case for the future demographic plays they aim for aren’t impacted at all. Component companies of GHII, like Macquarie Infrastructure Corp (NYSE:MIC) and Snam SpA (BIT:SRG) poised to benefit from global urbanization trends in the coming year.

The Author does not own any of the stocks or bonds discussed in the article.