6 COMMON INVESTMENT STRATEGIES OF FUND MANAGERS
(Continued)
Contrarian
investing
Contrarian
managers choose assets that are out of favor. They determine the market's
consensus about a company or sector and then bet against it.
The contrarian
style is generally aligned with a value-investing strategy, which means buying
assets that are undervalued by some statistical measure, says Wharton's Geczy.
"In the long run, value has beaten growth in assets around the world, though
during certain periods that's not true," he says. "The contrarian
style generally rewards investors, but you have to choose the right assets at
the right time."
The risk, of
course, is that the consensus is right, which results in wrong bets and losses
for a contrarian manager.
Dividend
investing
As the name
suggests, dividend funds buy stocks with a strong record of earnings and
dividends. Because of the stock market volatility of recent years, many
investors like the idea of a fund that offers them a regular payout.
"Even if the price goes down, at least you're getting some income,"
says Russ Kinnel, director of mutual fund research at Morningstar. "It's a
nice way to supplement income if you're retired."
However, the
recent popularity of dividend stocks causes some market pundits to wonder if
they’re currently overvalued. Also, beware of funds with extremely high yields.
That could be a sign that companies are taking outsized risk and are headed for
declines.
Most experts
advise diversifying among investment styles. "In the end, a balanced way
of looking at things tends to create fewer errors," Heyman says.
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