Where to go when volatility's got you down

Look for more volatility as the U.S. election season heats up, debates about the debt ceiling and tax cuts intensify, and the European crisis unfolds. Investment gurus on a panel at Pershing LLC’s annual conference said Thursday that volatility, as measure by the VIX, is still relatively low. Hence, they expect more fireworks. “There are enough scary data points over the next six months to make things really scary,” said Nicholas Colas, chief market strategist and ConvergEx. “Making bets is a bad thing to do, and avoid things that don’t pay you an income,” said Donald Plotsky, head of the product group at Western Asset Management. “Avoid products you don’t understand” and static portfolios that can’t react to market gyrations, said Eric Anderson, an ETF analyst at First Trust Advisors. Attendees were encouraged to think outside the U.S. “The action ain’t here,” Mr. Plotsky said. “A significant portion of our clients are corporate clients,” he said. “I ask them how things are going, and invariably, they tell me their greatest opportunities are outside the U.S.” Mr. Plotsky recommended global companies that are growing, reducing costs and expanding customer bases. Also, he said he favors government debt in “countries where people want to be” due to good fundamentals, high-yield emerging-markets bonds, rounded out with REITs and dividend-paying equities. “Muni credit spreads look pretty attractive” in a world where tax rates will likely go up, added Michael Wands, investment director at Putnam Investments. Mr. Anderson counseled listeners to avoid ETFs that use cap-weighted indexes. “Unless you have ETFs that use a buy-low/sell-high [strategy], you’re going to get hurt,” he said.