The bond market is a little nervous. Although inflation has come down and unemployment is low, there are worries that inflation will bounce back, and the Federal Reserve will hit the brakes on its interest-rate cut plans. That makes stocks unhappy.
The market always has worries, so it makes sense to stay pretty fully invested, but a little effort on downside protection can help you get through the next selloff, whether it happens next month or three years from now.
So, I sought out funds with the greatest downside-capture ratios. That’s a measure Morningstar uses to calculate how much of a market selloff a fund “captures.” A figure over 100% means that the fund lost more than the broad benchmark in past selloffs, and a figure below that means it lost less. A negative figure means it actually made money. The broad benchmarks used to calculate the figures were the S&P 500, Bloomberg US Aggregate Bond, MSCI ACWI, and MSCI ACWI ex USA.
I used 10-year downside-capture ratios to be sure there would be a fair amount of data.
Now for the caveat: A low downside-capture ratio does not equate to no or even low risk. It tells you that a fund has been a good diversifier from the broad market. […]
— Read More: www.morningstar.com
