The major U.S. indexes float serenely like whales above an ocean of stock data, obscuring from view an entire food chain of indexes and ETFs beneath them. Even professional stock analysts can get lulled into viewing the markets through fish-eye lenses trained on the S&P 500, the Dow Jones Industrial Average, the Russell 2000, and the NASDAQ 100 indexes.
But you, intrepid individual investor, have both an interest in making money and a natural curiosity about the markets, right? Let's examine four investment themes far removed from the mainstream indexes that paid off for investors in 2013.
Wine and cheese
The Bloomberg Wine and Cheese Index (Index symbol: BWCHX) is an eclectic collection of 16 global wine and cheese retailers. Holdings include Spanish wine retailer Baron de Ley, Chilean global wine producer Concha Y Toro, and Japanese cheese dairy Rokko Butter, which trades on the Tokyo Stock Exchange. The index has gained more than 35% year to date. U.S. investors may want to pore through the financials of a below-the-radar stock that is helping power this index to its stellar returns: New York-state-based Constellation Brands (STZ 0.78%), one of the world's largest wine purveyors. Constellation Brands owns a number of well regarded wine labels, including Robert Mondavi and Ravenswood. The company has grown through acquisitions in recent years and will likely profit from its purchase of Crown Imports, which imports and distributes best-selling Mexican beer brands in the U.S., including Negra Modelo, Corona, and Pacifico Clara. Constellation Brands stock has appreciated more than 85% year to date but trades at a reasonable 18.4 times forward earnings.
Lower risk equals greater return?
The FTSE USA Minimum Variance Index, part of FTSE's Global Minimum Variance Index Series, pulls off a mesmerizing sleight of hand: while promising lower volatility, it has recently posted returns that are superior to the broader market. Through the first 11 months of this year, the USA Minimum Variance Index posted a total return of 29.5% (the FTSE publishes the index results on monthly basis), outpacing the S&P 500 Total Return index by more than 3.5 percentage points. The index seeks to minimize volatility through stock selection and industry and sector allocation. The top 10 holdings include names you'd expect to encounter if you were seeking out high-performing stocks with low volatility, including Kimberly-Clark (KMB 0.97%), Dollar General (DG -0.59%), The Hershey Company(HSY 0.09%), and General Mills (GIS 1.93%). The Fund's top two holdings seemingly take a bit more risk: Internet travel company TripAdvisor (TRIP -0.83%) and waste water engineering solutions company Xylem (XYL 0.54%). Yet while both companies have appreciated handsomely in 2013 (with 98.3% and 25.7% returns year to date, respectively), they both sport a beta that's just over 1.0. In other words, both stocks exhibit volatility not much in excess of the overall market. You can learn more about the FTSE's Global Minimum Variance Index Series, not yet a household name, here.
Iceland and Ireland: back from the brink
While most world economies have slowly struggled to return to growth since 2008, Iceland and Ireland have both suffered through particularly tumultuous years. Iceland weathered a collapse of its banking system during 2008-2011 and is still saddled with high consumer-mortgage debt. Ireland's economy fell into difficulties when a property bubble burst and the country was forced to receive a bailout from the European Union and International Monetary Fund in 2010. Currently, Ireland's debt is 117% of annual GDP.
While both countries face years of economic recovery ahead, 2013 marked some positive changes for each. This month, Ireland exited its $90.9 billion bailout program. Iceland's economy has stabilized and is projected to grow at a steady rate of 2.5% to 3% for the next few years. Investors in the two countries' equity markets were encouraged enough by positive news to commit some capital to these still risky venues: The Irish Stock Exchange Overall Index and the Iceland Stock Exchange Main Index have returned 34.3% and 27.3% year to date, respectively.
Investing gold in the Ozarks
If you mistake the beautiful Ozarks for being no more than a tourist destination, the Bloomberg Ozarks Index (Index symbol: BOZX) and its 29.5% year-to-date return will set you straight.. The index is comprised of 18 companies that are headquartered or have significant operations in the Ozarks, the highlands region that spans southern Missouri, northern Arkansas, and parts of Oklahoma and Kansas. Included are global behemoth WalMart (WMT 0.46%), headquartered in Bentonville, Ark., as well as a number of other regional companies with both national and international operations. Monet, Mo.-based Jack Henry & Associates (JKHY 0.50%) provides information technology services to the global financial services industry. The $1.2 billion company posts quarterly profit margins of nearly 17%, and its stock has climbed nearly 50% in 2013. Another Missouri-headquartered company, O'Reilly Automotive (ORLY -0.92%), enjoyed a heady 2013, gaining almost 40%. The company is a specialty retailer of automotive parts, boasting $6.5 billion in annual sales and a return on equity of 31%. O'Reilly may see continued success in 2014 if consumer spending in the U.S. economy continues to improve.
The point of seeking out alternative investment themes
Seeking out investment themes that lie off the beaten track shouldn't replace your focus on building a core portfolio of well-researched long-term investments that meet your personal investment goals. Yet following your own curiosity is a fantastic way to gain exposure to ideas that you might not normally encounter, and your overall investing acumen will improve in the process. Enter a few selective positions along the way and you might end up boosting your stock returns as well.
