Last month, Equities.com explored the performance of funny ticker stocks versus the S&P 500 during the November-June bull market. The FUNY Index, thanks to strong diversification and stellar performances from Cardionet (BEAT), Southwest Airlines (LUV), OM Group (OMG), Olympic Steel (ZEUS), and others, surprisingly outperformed the S&P 500 by seven percent.
Here’s a breakdown of the FUNY Index’s performance during that timeframe:
However, the index’s performance was tracked during a tremendous bull market, underscoring the legitimacy of the sample size. Over the past month, market volatility returned amid tapering rumors from the Federal Reserve, higher interest rates, and economic slowdowns abroad. Therefore, it’s important to revisit the index to analyze how it performs during tougher times.
The following spreadsheet breaks down the performance of the FUNY Index from June 6, 2013 to July 4, 2013.
The FUNY Index, again, significantly outperformed the S&P 500. With two consecutive periods of outperformance, can we infer that there is something special about these companies? Absolutely not, but the index’s performance does carry valuable investing lessons.
The first lesson learned from the FUNY Index is the importance of steering clear of high-yielding stocks when interest rates rise. Over the past month, interest rates have gone up significantly, increasing the demand for bonds. “Safe” stocks with high dividends have suffered the most because they are widely perceived as bond-equivalents, while lower-yielding, higher growth companies have outperformed the market.
The FUNY Index performed well, in part, because Cedar Fair L.P. (FUN) is the only stock in the index with a yield above two percent. Therefore, the index didn’t selloff as much as some high-yielding utilities, master limited partnerships, and telecommunication stocks.
The second lesson from the FUNY Index stresses importance of owning at least one speculative stock in a portfolio. Cardionet (BEAT) was responsible for a huge portion of the index’s gains, after the company announced that UnitedHealth Group (UNH) would cover its heart monitoring devices to patients with Medicare and Medicaid. The stock soared over 50 percent on the news, and continued higher in ensuing days.
While it’s never a good idea to assume too much risk in a portfolio, one or two speculative stocks are more than acceptable. A positive announcement from any speculative stock can drive the performance of an entire portfolio.
While investors should never invest in a company based on its ticker symbols, investors can certainly apply these lessons to their investment strategies.