We Have a New Income Fund to Buy - The PowerShares CEF Income Composite Portfolio

08/09/2010 Update

The PowerShares CEF Income Composite Portfolio (PCEF) is an ETF fund of funds and currently yields nearly 8.5%. It holds various income producing closed end funds and can greatly simplify a portfolio by allowing us to replace individual income investments with this one fund.

The PowerShares CEF Income Composite Portfolio (Fund) is based on the S-Network Composite Closed-End Fund IndexSM (Index). The Fund will normally invest at least 80% of its total assets in securities of funds included in the Index. The Fund is a "fund of funds," as it invests its assets in the common shares of funds included in the Index rather than in individual securities. The Index currently includes closed-end funds that invest in taxable investment grade fixed-income securities, taxable high yield fixed-income securities and others utilize an equity option writing (selling) strategy.

I began buying this fund a few weeks ago and will be reinvesting the dividends along with buying more on dips.

Click here to see current chart







12/17/2009 Update

It is time to invest in Floating Rate and Short Duration Income funds. Here are two to consider:

Van Kampen Senior Income Trust (VVR) currently yields over 7% and is selling at a discount to NAV.
The fund is managed by Van Kampen Asset Management. It operates as a nondiversified, closed-end management investment company. It invests primarily in a portfolio of interests in floating or variable rate senior loans to corporations, partnerships, and other entities, which operate in various industries. The company’s investment portfolio primarily includes investments in companies operating in consumer discretionary, consumer staples, energy, financials, healthcare, information technology, industrials, materials, telecom services, and utilities sectors.


Eaton Vance Limited Duration Income Fund (EVV) currently yields over 9% and is also selling at a discount to NAV.
The fund invests in senior, secured floating-rate loans, mortgage-backed securities, and corporate bonds that are rated below investment grade quality, known as junk bonds with an average duration of 3.47 years and average quality BBB/BBB-

Both of these funds pay out dividends monthly.


Click to see Current chart of VVR




Click to see Current chart of EVV




12/10/2009

The Nuveen Diversified Dividend & Income Fund (JDD) is on sale and I'm buying.

The fund invests primarily in U.S. and foreign dividend-paying common stocks, dividend-paying common stocks issued by real estate companies, emerging markets sovereign debt, and senior secured loans. The fund expects to invest at least 40%, but no more than 70%, of its managed assets in equity security holdings and at least 30%, but no more than 60%,of its managed assets in debt security holdings. Under normal circumstances, the fund's target weighting is approximately 50% equity and 50% debt. The fund uses leverage.

At todays price of $9.60 a share, it is selling at a 14% discount to its underlying holdings and it yields 9.8%. This fund pays the dividend quarterly.

Click to see Current chart of JDD


11/12/2009 Update
Lets consider two stand-out Mutual Funds

While the overall market was crashing in 2008, the Merger Fund (MERFX) only lost around 2%. In my book that is pretty amazing. When the overall market tanked in 2002, the fund only lost about 6%. Again, pretty amazing.

The investment seeks capital growth. The fund normally invests at least 80% of assets in the equity securities of companies which are involved in publicly announced mergers, takeovers, tender offers, leveraged buyouts, spin-offs, liquidations and other corporate reorganizations. Merger arbitrage is a highly specialized investment approach generally designed to profit from the successful completion of such transactions. It is nondiversified.

The Arbitrage Fund (ARBFX) is another standout losing less than 1% in 2008.
The investment seeks to achieve capital growth by engaging in merger arbitrage. The fund normally invest at least 80% of net assets in equity securities of companies (both domestic and foreign) that are involved in publicly announced mergers, takeovers, tender offers, leveraged buyouts, spin-offs, liquidations and other corporate reorganizations. Equity securities include common and preferred stock. It may engage in active and frequent trading of portfolio securities to achieve its principal investment strategies.
One new Closed End Fund I also like is the Gabelli Global Deal Fund (GDL)
The Gabelli Global Deal Fund is a closed-end, non-diversified management investment company whose investment objective is to achieve absolute returns in various market conditions without excessive risk of capital. Absolute returns are defined as positive total returns, regardless of the direction of securities markets. To achieve its investment objective, the Fund, under normal market conditions, will invest primarily in securities of companies (both domestic and foreign) involved in publicly announced mergers, takeovers, tender offers and leveraged buyouts and, to a lesser extent, in corporate reorganizations involving stubs, spin-offs and liquidations.

I like and own all three of these funds because they only act when something is worth acting on. Takeovers and buyouts tend to happen more often in good economies and positive market conditions and these funds have no obligation to be invested when there is nothing to invest in.

I expect these funds to return 6% to 8% in good times and lose little if any in the bad times. While those aren't get rich quick kind of returns, retirement investing is more about protecting your capital from market downturns and inflation. These three funds fit the bill,


10/21/2009

Cohen & Steers REIT & Preferred Income Fund (RNP) is one of my favorite Closed End Funds for investing in Real Estate.

RNP is a well managed fund that invest 40% of its total assets in common stocks issued by real estate companies, 40% in preferred securities and 20% in other debt securities.

It currently yields 8% and I consider it a core holding for income portfolios.


The yields on Mortgage Real Estate Investment Trusts (REITs) are too high to ignore.

These three are mortgage real estate investment trusts whose investments have their principal and interest guaranteed by government agencies.

Annaly Capital Management (NLY) Annaly is currently yielding over 15%, is the oldest of the group and my favorite.

Hatteras Financia Corp. (HTS) Hatteras is currently yielding over 16%
American Capital Agency Corp. (AGNC) American Capitalis yielding over 20%

The yields on these are high because of the fear of higher rates in the future, but I believe that gives us the opportunity to buy them on sale. The Fed will keep rates as low as they can for as long as they can to aid in the economic recovery.

Even though these are sound, high yielding investments, it is important to keep position size relative in proportion to your other investments. They should be used sparingly to boost your overall yield, not to provide the bulk of your dividends.



06/30/2009
Not all debt is traded in the bond market.

Some large, fundamentally sound companies are willing to pay you a decent return to borrow money. They issue Exchange-Traded Debt securities.

These are sometimes called Preferred Equity Traded (PET) bonds and trade on stock exchanges rather than the bond market. They were specifically designed for sale to the investing public and usually sell for $25 each making them easier for small investors to buy and sell.

These are all considered investment grade and yield near 6%.

Alabama Power - Symbol (ABA)

Georgia Power - Symbol (GAR)

AT&T- Symbol (ATT)

GE - Symbol (GEJ)

Credit Suisse - Symbol (CRP) This one qualifies for the 15% tax rate for individuals.

Prudential Financial - Symbol (PFK) This one pays monthly and is inflation adjusted based on the CPI +2.4%

Most pay distributions quarterly.
Except CRP, they do not qualify for the reduced 15% tax rate.

NOTE:
These trade in small volumes. You must use limit orders or you will pay too much.


06/02/09

The market is going through a pull back and that gives us an opportunity to buy one of my favorite Closed End Funds: Transamerica Income Shares, ticker -(TAI)

Transamerica Income Shares, Inc. is a closed-end, diversified management investment company. The objective of the Fund is to provide a high level of income, with capital appreciation only a secondary consideration. It is the policy of the fund to have at least 80% of its assets invested in fixed income debt securities or cash and equivalents. At least 50% of the fund's assets will be invested in straight debt securities with a rating within the four highest categories for such securities as determined by Moody's or Standard & Poor's. Debt securities with equity features may comprise up to 20% of the fund's net assets.

TAI currently yields over 8%, is selling at a nice discount to it's actual value and has been around since 1978. It pays the dividend monthly and they have even been raising the dividend.

Why most Mutual Funds perform poorly

There are a couple reasons Mutual funds perform poorly compared to the Dow or S&P 500 index.

1. Fees: The Dow 30 or S&P 500 have no fees for buying and selling, mutual finds do. Funds must buy or sell stocks as investors buy or sell the fund. This creates transaction costs.

2. Fees: Fund Managers charge fees to manage the funds.

3. Past performance. If a fund has a good year, it will most likely be touted in Money Magazine, Forbes and various other lists of Top 10 and 'Must Own' investments.

Past performance is a double edged sword. The problem comes when the fund is flooded with new money. The managers have to put that new money to work, but they might not be able to pick and chose the best stocks as they had in the past when the fund was smaller. They often end up buying the same stocks every other fund buys and that leads to mediocre performance. When new investors pile into an investment because of recent good performance it is called Chasing Return. It is usually a bad idea.

4. Benchmarks. Most funds are judged on relative performance. They are graded on how well they perform to a benchmark like the DOW30 or Russell 3000 small cap index. Their goal is to perform at least as well as the benchmark. Most aren't paid to beat the benchmark, and they aren't paid to protect your money. In fact, it could be detrimental to attempt to beat the benchmark and fail. The fund could find itself on a 'Worst Fund' list. So when the market goes up the fund goes up, and when the market goes down, they go down.

They will tell you not to worry. They will talk about investing for the long term, but the main reason they want you to stay in their funds is the Fees. Don't forget, they are paid by the amount of money they manage whether they make you money or not.

5. Investors themselves. Most investors are lousy market timers. Not only do they chase last years winners, but they buy at the top and sell at the bottom. That greatly effects the funds they invest in. When money floods in after the fund has been rising, the fund managers are forced to buy stocks at ever increasing prices. Then when the market falls investors flee in mass, forcing the fund to then sell at the bottom. The cycle repeats over and over.

We should all agree investing is a long term process, but we no longer have to pay fees for mediocre Managers to build a diversified income and investment portfolio. Investors now have far more alternatives to typical Mutual funds than just a few years ago.

I'll be getting into a few I consider to be the best.

Thank you for stopping by.