A little more than a year ago -- as you may painfully recall -- emerging markets hit the skids, and our domestic market took a tumble, too. The story isn't exactly the same in 2007, true, but it's close. As I type, the S&P 500 is off by roughly 4% over the last month; the MSCI EAFE -- the S&P of international equities -- has declined by slightly more than that amount.
As we head further into summer, when lighter trading volume can exacerbate volatility, it's worth asking: Is this the calm before the storm? That's a particularly apt question when you factor in our lengthy bull run, which has lasted nearly five years now.
Don't get me wrong
I'm certainly no advocate of market timing. That's a loser's game, and even during dramatic and protracted upswings, Mr. Market can still serve up bargains. UPS (NYSE:UPS), Citigroup (NYSE:C), and Wells Fargo (NYSE:WFC), for example, all sport price-to-earnings ratios (P/Es) below their five-year highs. Johnson & Johnson (NYSE:JNJ) and American International Group (NYSE:AIG) fit that profile, too, while Valero (NYSE:VLO) and Chesapeake Energy (NYSE:CHK) currently trade with P/Es that hover around single-digit territory, despite a track record of whipping up on the market.
That said, I think now is a fine time for savvy types to take stock of their portfolios and consider adding ballast in the form of Grade-A mutual funds. Funds can help take the sting out of pesky performance gyrations, adding carefully calibrated diversification to a portfolio that might, for instance, be heavily tilted toward the market's little fish or value-oriented stocks -- two asset classes that have fared especially well during the latest bull run.
Go growth
With that as a backdrop, I think now is a fine time to invest against the grain by tilting toward growth. True, owing to heightened earnings-growth expectations, that asset class can be subject to the slings and arrows of irrational exuberance. Funds, however, can provide an investment vehicle that strikes a winning risk/reward profile -- provided you choose 'em Foolishly.
At Motley Fool Champion Funds, the investing service I head up, I look for, among other things, low expense ratios; smart, emotion-free investment strategies; and managers who stick to those strategies through upswings and downturns. Indeed, for the kinds of managers who make our grade, sell-offs practically scream "buying opportunity."
So far, those criteria have worked out well: Taken collectively, our recommendations have bested their benchmarks by a double-digit margin.
The Foolish bottom line
Now may be a perfect time to be contrary and put growth stocks to work. When it comes to choosing the right funds, the best places to start are low expenses, sound strategies, and battle-tested managers.
Of course, if you'd like to sneak a peek at our winner's list -- which includes a clutch of growth-oriented keepers -- you can click here to give Champion Funds a risk-free spin, and remember: Funds can provide a smart way to participate in bull runs and stay in the game when the bears roam. Can you say the same of your stock portfolio?
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This article was originally published as "A Summer Sell-Off in the Making?" on June 5, 2007. It has been updated.
At the time of publication, Shannon Zimmerman didn't own any of the securities mentioned above. Johnson & Johnson and UPS are Motley Fool Income Investor recommendations. Chesapeake Energy is an Inside Value pick. You can check out the Fool's strict disclosure policy by clicking right here.
