4 Ways Investors Can Play This Market

Corporate bonds, dividend payers, the dollar, and commodities are in the sweet spot, S&P analyst says.

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Aside from Treasuries and a handful of other asset classes, not much worked for investors in 2008. Hopefully 2009 won't play out like a bad sequel. In this week's The Outlook newsletter from Standard & Poor's, equity strategist Alexander Young lays out four investing strategies he thinks have the potential to deliver positive returns in this market (they may also reduce the volatility of an overall portfolio):

1. Investment-grade corporate bonds. Young says these bonds can boost the yield on your cash investments without adding too much risk. One access point: iShares iBoxx Investment Grade Corporate Bond ETF (LQD), which pays quarterly dividends quarterly and recently yielded 5.5 percent.

2. S&P "Dividend Aristocrats." U.S. companies with a history of raising their dividend payouts have  historically delivered higher returns than their peers, Young points out.  The S&P High Yield Dividend Aristocrats index tracks the 50 highest yielding companies in the S&P 1500 Composite index that boosted their dividends every year for at least 25 consecutive years. An ETF that tracks that index is the SPDR S&P Dividend ETF (SDY) It pays dividends quarterly and recently yielded 6.1 percent.

3. The U.S. Dollar. Quality rules in a down market. Young says the dollar has benefited from the so-called “flight to quality" Treasury buying, as well as the decline in overseas economies. "We believe the global recession and credit crunch will be with us for a while. This should help maintain a 'flight to quality' bid in Treasuries, which would offer further support to the U.S. dollar, as would continued international economic deterioration, which we think is likely," he writes. An ETF in this space is the PowerShares DB U.S. Dollar Index Bullish ETF (UUP).

4. Commodities. Global economic deterioration could drive commodity prices even lower, says Young, but the long-term outlook is compelling. "Our conviction is due in part to the much larger drop in raw material prices than equities in reaction to the global recession," he writes. The iShares S&P GSCI Commodity-Indexed ETF (GSG) is one way to play this idea.