Dec 27 For 2012, think volatility -- again.
Yet that doesn't mean that economic recovery won't be part
of the story. A focus on the industries likely to benefit from
a rebound and long-term demographic trends bodes well for these
* Health Care. If you don't have health-care stocks as part
of core holdings in broad-based index or sector funds, you're
going to missing almost guaranteed growth.
The leading edge of the 77-million-plus Baby Boomer
generation has hit 65, a wave that will last more than 20
years. That will increase the demand for medical services,
devices and pharmaceuticals.
Since health-care costs are outpacing consumer inflation,
government and industry will be seeking myriad ways to cut
costs. This means an even greater reliance upon drugs,
Patents on brand-name drugs are scheduled to expire in
coming years, potentially creating a $100 billion market for
generics, according to Leuthold Research. Sectors likely to
benefit are pharmaceuticals, biotechnology, distributors and
Consider the iShares NASDAQ Biotechnology Index
exchange-traded fund , which is the oldest ETF in this
sector. For a more broad-based approach that includes most of
the health-care industry, consider the T. Rowe Price Health
Sciences Fund .
* Consumer Discretionary. Are you a believer that the U.S.
economy will continue an upward trend in 2012? Then you'll want
to have a piece of general merchandise stores, apparel,
diversified banks, computers/software and air freight
companies. This is assuming that nothing nasty crosses the
Atlantic to spoil the nascent recovery.
The Consumer Discretionary Select Sector SPDR ETF
owns shares in an array of companies in retailing, hotels,
cable television, entertainment/media and consumer durables.
This choice is largely based on an economic upswing, so if you
see that employment is not improving or the gross domestic
product is falling, then stay away from this sector.
* Utilities. In contrast to consumer stocks, these
companies are best-suited for nervous Nellies who don't want to
make bets on the economy at large.
Electric/gas/water and pipeline companies have been fairly
solid refuges in recent years. They pay healthy dividends on a
regular basis and generally represent a low-volatility sector.
The Utilities Select Sector SPDR holds companies
that "produce, generate, transmit or distribute electricity or
* Emerging Markets. By now, you've probably heard ad
nauseum how developing countries will be the main source of
growth in the world economy in years ahead. That's mostly true,
but it's never a straight line, and there will be some bumps in
Yet there's a reason why capital is flowing into Brazil,
China, India and countries that have global connections to
them. They have growing middle classes. Developing countries
also don't have the debt burdens of the U.S. and Europe, so
they are spending cash on building their economies.
But don't just focus on the largest economies. You need to
consider Taiwan, Korea, Vietnam, Indonesia and smaller
countries as part of the mix. One good way to sample most of
these countries is through the Vanguard MSCI Emerging Markets ETF.
* Technology. Innovation and productivity are the main
reasons to own technology stocks.
Sure, they will perk up in any economic resurgence, but
they are drivers of profits as well. You only have to look at a
company like Apple Inc to see how the idea of
technology as a daily productivity tool has become embedded in
modern culture. What will be the next iPhone? I don't know, but
your portfolio should have a basket of companies that are
working on the answer.
The Technology Select Sector SPDR Fund pretty much
As with all of my recommendations, I encourage you to
consider your financial goals first and how much risk you can
take. The market will still continue its bi-polar escapades, so
you have to look beyond that.
The author is a Reuters columnist. The opinions expressed
are his own.