Bill Gunderson

This is the year of the small and mid-cap domestic stock. And for many smart investors, it is the year that traditional asset allocation among stocks, bonds, and gold has finally outlived it usefulness.

I am not a believer in the traditional asset allocation models that are built on the Model Portfolio Theory that says investors need so much money in stocks – often for growth -- and so much in bonds – often for income. And often so much in gold for security.

There are lots of places to get income besides bonds. Instead, I move around among the various asset classes as world and economic conditions dictate.

When it became obvious about 18 months ago that interest rates had nowhere to go but up, and the FED had no other choice but to tighten at some point, I got out of the way of the freight train that was headed right for the market.

I got out of bonds.

Just in time to avoid the beating that bonds took this year: The U.S. Long bond (TLT) is now down 14.7% YTD.

I have also not had any exposure to the emerging markets, as they have been at the bottom of my asset class rankings since the beginning of the year. That too has helped my performance greatly in 2013 as the emerging markets as a whole are down about 9% year-to-date. Contrast this with the 24% return of the U.S. S&P 500 index.

Gold has also been a bad place to be in 2013 as it is now down over 23% year-to-date. So much for asset allocation into gold.

Instead I have been heavily focused in small and mid-cap domestic stocks which have led the market all year long. The S&P 500 small-cap index is up a whopping 32.8% year to date.

Being in the right sectors of the market is a great place to start selecting investments. 2013 has been a year that has greatly favored pharmaceutical, biotech, and technology stocks. Of course, this is where a lot of small and mid-cap stocks reside.

Here is my current top ranked sectors from amongst the sixty that I track:

Data from Best Stocks NowApp

The pharmaceutical sector (XPH) is up over 54% year to date, while the Biotech (IBB) sector is up 52%, and the Internet Sector (FDN) is up 42%.

One stock that I own at Gunderson Capital Management is Akorn Inc. (AKRX).

Bill Gunderson

Bill Gunderson is the CEO and Chief Market Strategist of Gunderson Capital Managment in San Diego, CA. He is also a professional money manager, former research analyst, author of Best Stocks Now.

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