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INCLINE VILLAGE, Nev. — Investors are disenchanted. The market is too volatile for them with its triple-digit moves day after day. Just when stocks look good they fall. But so-called “safe” investments produce little. Yields on CDs and money-market funds are close to zero and they won't be rising for the foreseeable future. Treasury yields have fallen, too. How can one generate better returns?
Our recommendation is to hold selected income producing securities, the ones we've discussed over the past few months. These include preferred stocks, emerging market debt and utilities. These are holding up fine in today's market and offer investors an attractive yield.
Preferred stocks represent an equity investment in a company, as do common shares, but rank higher in the corporate pecking order when it comes to dividends or assets (in bankruptcy). Like bonds they pay dividends regularly with yields of approximately seven percent. They are primarily income vehicles, so there will be little if any price appreciation. While many investors choose to purchase a preferred stock ETF, we find they hold many unattractive or overpriced securities so, for our client portfolios, we own individual preferred issues. One of our favorites is the Saul Centers 8% Series A issue. It's not heavily traded so use limit orders.
Emerging market debt funds invest in bonds from less-developed countries. Their bonds have lower credit ratings than other sovereign debt, because of the increased political and economic risks. As a result, they reward investors with a higher yield and capital gains potential. The asset class is attractive now because emerging economies are growing faster than those in the developed world. You can invest through several ETFs. PowerShares Emerging Markets Debt (PCY) and Western Asset Emerging Markets Debt (ESD) are two. I like the latter, which yields over seven percent.
When you think of high yielding equities utility stocks often come to mind. Utilities is the best performing sector this year, plus investors have been rewarded with yields of four or five percent and dividend growth. Some consider utilities a safe haven and to some extent that is true. Most are monopolies with a guaranteed return on capital. That is not to say they are risk free. If interest rates rise their yields will be less attractive, so their prices will fall. Many are also heavy borrowers. Rising rates will raise their costs. The Select Sector Utility SPDR (XLU) is a good way to invest. It owns all the utilities in the S&P 500 Index.
There is the old saying, “Be fearful when people are greedy and greedy when they are fearful.” While many are fearful now, the stock market won't advance far until the economy improves. In the meantime, there are safer high yielding options for those that need income from their investments or can't wait for the global marketplace to improve.
— David Vomund is an Incline Village-based fee-only Registered Investment Adviser. Information is found at www.ETFportfolios.net or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.
Our recommendation is to hold selected income producing securities, the ones we've discussed over the past few months. These include preferred stocks, emerging market debt and utilities. These are holding up fine in today's market and offer investors an attractive yield.
Preferred stocks represent an equity investment in a company, as do common shares, but rank higher in the corporate pecking order when it comes to dividends or assets (in bankruptcy). Like bonds they pay dividends regularly with yields of approximately seven percent. They are primarily income vehicles, so there will be little if any price appreciation. While many investors choose to purchase a preferred stock ETF, we find they hold many unattractive or overpriced securities so, for our client portfolios, we own individual preferred issues. One of our favorites is the Saul Centers 8% Series A issue. It's not heavily traded so use limit orders.
Emerging market debt funds invest in bonds from less-developed countries. Their bonds have lower credit ratings than other sovereign debt, because of the increased political and economic risks. As a result, they reward investors with a higher yield and capital gains potential. The asset class is attractive now because emerging economies are growing faster than those in the developed world. You can invest through several ETFs. PowerShares Emerging Markets Debt (PCY) and Western Asset Emerging Markets Debt (ESD) are two. I like the latter, which yields over seven percent.
When you think of high yielding equities utility stocks often come to mind. Utilities is the best performing sector this year, plus investors have been rewarded with yields of four or five percent and dividend growth. Some consider utilities a safe haven and to some extent that is true. Most are monopolies with a guaranteed return on capital. That is not to say they are risk free. If interest rates rise their yields will be less attractive, so their prices will fall. Many are also heavy borrowers. Rising rates will raise their costs. The Select Sector Utility SPDR (XLU) is a good way to invest. It owns all the utilities in the S&P 500 Index.
There is the old saying, “Be fearful when people are greedy and greedy when they are fearful.” While many are fearful now, the stock market won't advance far until the economy improves. In the meantime, there are safer high yielding options for those that need income from their investments or can't wait for the global marketplace to improve.
— David Vomund is an Incline Village-based fee-only Registered Investment Adviser. Information is found at www.ETFportfolios.net or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.
