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Investing Trends of 2010

’Tis the Season… for making lists! It could be the Santa Claus influence, or maybe they’re simply the best way to summarize an entire twelve months into a page or two—but whatever it is, Top Ten lists become especially prevalent this time of year. The Top Ten Movies of 2010,...

’Tis the Season… for making lists! It could be the Santa Claus influence, or maybe they’re simply the best way to summarize an entire twelve months into a page or two—but whatever it is, Top Ten lists become especially prevalent this time of year. The Top Ten Movies of 2010, The Top Ten Tweets, Top Ten Campaign Ads, Top Ten Food Trends, The Ten Best Books of 2010, and, from TIME, The Top 10 of Everything 2010 (including numbers, underreported stories, over-reported stories, and political gaffes). In the spirit of the season, this week I present the Top Ten Investing Trends of 2010. Next week, we’ll look to the future with the Top Ten Trends for 2011 based on our contributing experts’ year-end predictions and recommendations. But for now, a little reminiscing:

1. Retail

Confidence in the retail sector waxed and waned, it seemed, largely on the basis of week-to-week indicators like the consumer sentiment index. But the primary evidence-earnings reports and guidance numbers from companies like Wal-Mart (WMT), Target (TGT) and Tiffany & Co. (TIF)—was steadily positive, and the sector has great gains to show for it. Investors who bet on a resurgent American consumer early in the year were rewarded for their confidence; Dick Davis recommendations included Ross Stores (ROST) up 30% since recommendation in March), Jo-Ann Stores (JAS) up 13% since March), Genesco (GCO) up 27% since March) and Abercrombie & Fitch (ANF) up 19% since April).

2. Cloud Computing

This technology mini-sector boasted some of 2010’s biggest gainers, see last week’s issue here for an explanation of cloud computing and analysis of the biggest players.

3. Gold (and Silver)

We went over the causes, implications and future of gold mania pretty well two weeks ago; you can read the issue here.

4. Rare Earths

At the start of the year, few investors could have told you what rare earth metals were. Today, most can probably tell you where most of them are dug up (China), why they’re important (they’re used in technologies like hybrid cars and wind turbines) and maybe the names of a few (scandium, yttrium and 15 lanthanides). The catalyst for rare earth awareness was China’s not-so-secret usage of the exported minerals as diplomatic bargaining chips. Rare earths became a national security issue, and non-Chinese companies with access became hot investments. The most popular, Molycorp (MCP) was recommended in the Investment Digest in early December, by Yiannis Mostrous, Editor of Silk Road Investor. He wrote:

“Buying a company without revenues or earnings always entails added risk, especially when the company will need to raise additional funding to start operations. However, Molycorp is sitting on a truly unique asset—a proven rare earth element-producing mine that can be brought on-stream relatively quickly to take advantage of the near-term supply shortage of REEs. Molycorp is added to the Metals Portfolio as a buy under $36.” Molycorp is up 45% to $29 since Mostrous recommended it.

5. Metals

Commodity fever also increased interest in other metals, like lithium and molybdenum. Metals stocks recommended in the Digest early this year have been some of 2010’s best performers: Globe Specialty Metals (GSM) is up 90% since its recommendation in February, Teck Resources (TCK), also February, is up 75%. Molybdenum plays Thompson Creek Metals (TC), Northern Dynasty Minerals (NAK) and General Moly (GMO) are up 33%, 53% and 50% since their recommendations, respectively. And The Global X Lithium ETF (LIT), recommended shortly after its introduction in August, is up 34%.

6. Medical

The big trend here is demographics, and everything everyone said about demographics at the start of the year is still true today. But the prolonged health care reform debate, and then the passage of the long, complex and largely misunderstood health care reform bill created a lot of uncertainty around the sector. At the end of the day, some of the best plays were giants like Johnson & Johnson (JNJ) that continued to pay income investors well even if their stock prices didn’t appreciate much.

7. Agriculture

Commodity prices soared as the value of the dollar sank, and suddenly crops like cotton and soybeans were being hailed as the road to riches. Agriculture stocks, particularly fertilizer companies, got an extra boost from BHP Billiton’s attempt to take over Potash Corp. (POT). Mosaic (MOS) was one particularly popular pick; it’s up about 15% since the beginning of the year. The Market Vectors Agribusiness ETF (MOO) also showed up in a lot of newsletters; it’s also up 15%. In November, Mary Ann and Pamela Aden summed up the trend in The Aden Forecast, writing, “You name it, if it’s tangible, if it can be worn, eaten, used to build or held as a safe haven… it’s probably rising.”

8. Air Travel

This trend was a little less pronounced than some of the others, but the post-recessionary rebound in air travel was the inspiration for plenty of investments this year. In the Digest, we featured Air Castle (AYR) in January, WestJet Airlines (WJA) in February, Alaska Air Group (ALK) in February, JetBlue (JBLU) in April, LAN Airlines (LFL) in August, BE Aerospace (BEAV) and Republic Airways (RJET) in November and, most recently, CPI Aerostructures (CVU) in December.

9. Emerging Markets

No surprise here. Some of the best investments of the last decade have come out of the world’s fastest growing economies, China and India, and this year was no exception. A newly-prominent face in the group this year was Chile: the Investment Digest featured the iShares MSCI Chile Investable Index (ECH) at the beginning of the year, and the Dividend Digest featured the Aberdeen Chile Fund (CH) at around the same time. ECH is up over 40% and CH—which pays an 8% yield, is up 15%. Soaring copper prices (Chile is the world’s number-one producer) and an uplifting mine rescue didn’t hurt.

10. Bonds

Not technically a sector, but Fed policy and massive inflows of scared money into the relative safety of the bond market pushed yields to all-time lows. IBM issued 1% bonds, and Norfolk Sourthern (NSC) actually increased an offering of 100-year bonds to meet demand. Eventually market watchers called a bubble; and things started to deflate in November. Since then, Treasury yields have started climbing steadily, and investors are yanking their money out of bond funds. The first week of December saw the first net outflows from bond funds since December 2008. Next week: Top Ten Investing Trends for 2011, including which of 2010’s trends are still investable.

Wishing you success in your investing and beyond,

Chloe Lutts

Chloe Lutts Jensen is the third generation of the Lutts family to join the family business. Prior to joining Cabot, Chloe worked as a financial reporter covering fixed income markets at Debtwire, a division of the Financial Times, and at Institutional Investor. At Cabot, she is a contributor to Cabot Wealth Daily.