Kiplinger’s High Yield Investments

Kiplinger’s July 2008 Issue highlights opportunities to earn high yields on tankers, pipelines and real estate stocks.

Closed-End Income Funds:
First Trust Strategic High Income (FHI) - bank loans, mortgage-related securities and junk bonds. 14.6% yield.
Denali Fund (DNY) - Currently trades at a 9.5% discount to Net Asset Value and is converting from REIT fund to general leveraged fund. 12% yield

Junk Bond Funds - 8% yields:
Metropolitan West High Yield Bond (MWHYX)
Payden High Income (PYHRX)
TCW High Yield Bond I (TGHYX)

Energy Income Trusts:
BP Prudhoe Bay Royalty Trust (BPT) 11% yield
San Juan Basin (SJT) 7.7% yield
Cross Timbers (CRT) 9.9% yield
Enerplus (ERF) 10.5% yield
Harvest Energy (HTE) 14.7% yield

Ocean-Shipping Fleets:
Seaspan (SSW) 7.3% yield
Genco Shipping & Trading (GNK) 5.7% yield

High Yield Property REITS - Focus on Real Estate Investment Trusts that own hospitals, medical office buildings and other health-care facilities:
Codell Spencer (CSA) 7.5% yield
Medical Properties Trust (MPW) 8.4%
First Industrial Realty Trust (FR) 9%

Pipelines:
Enterprise Products Partners (EPD) 6.6% yield
Kinder Morgan Energy (KMP) 6.4% yield
Magellan Midstream Partners (MMP) 7% yield
Plains All American Pipeline (PAA) 7% yield

Emerging-Market Bonds:
Fidelity New Markets Income (FNMIX) 5.6% yield
Pimco Emerging Markets Bond D (PEMDX) 5.6% yield

I'm not prepared to jump on any of these yet. Keep your powder dry.

ETFs vs. Mutual Funds

I’ve been asked why I still invest in traditional Mutual Funds when ETFs (Exchange Traded Funds) are cheaper and more tax efficient.

First, I don't hold mutual funds in anything other than a tax advantaged 401(k) or an IRA and specifically, in my case, I hold mutual funds as the core position in an IRA.

I am willing to pay expenses (management fees) when I want an actively, professionally managed fund that I plan on holding for a very long time. I have allocated 50% of the total portfolio as core holdings to these mutual funds.

20% - FFFDX - Fidelity Freedom 2030
10% - FIGRX - Fidelity International Discovery
10% - FSPHX - Fidelity Select Healthcare
10% - FSPTX - Fidelity Select Technology

I’ll write more on why I’ve chosen these specific funds later (no, I don’t work for Fidelity Investments and they do not pay me for writing about them, although they should). I keep these core holdings as a foundation, a base from which I work more aggressively to increase my returns. That’s where ETFs come in.

I regularly use ETFs for shorter term trading strategies when I cannot or do not feel comfortable picking individual stocks. Basically, I’m managing these positions by deciding when to buy, how long to hold, and when to sell them. See here for some examples.

I’m still on the sidelines, waiting for the markets to calm.

Holiday Rally

I used the proceeds from my Currency ETF trade to take a rather large position in DIA - Diamonds (Dow Jones Industrial Average Index ETF). I also topped off my long term holdings in FSPTX - Fidelity Select Technology Fund, FSPHX - Fidelity Select Health Care Fund, and FIGRX - Fidelity International Discovery Fund.

We've just had a 10% correction and we're heading into the traditional holiday rally season. I think the prospects are good through the first of the year. I don't expect too hold DIA after the first of January.

Fidelity Strategic Funds

I have recently invested in a couple of Fidelity's Strategic Funds; but, because of the similarity of their names I'm constantly confusing the strategies and objectives.

FSDIX - Fidelity Strategic Dividend and Income Fund: (Equity Income) 50% common stocks, 15% REITs, 15% convertible securities, and 20% preferred stocks.

FSICX - Fidelity Strategic Income Fund: (Multisector Bond) 40% high yield, 30% U.S. Government and investment-grade, 15% emerging markets, and 15% foreign developed markets.

FSRRX - Fidelity Strategic Real Return Fund: (Allocation) 30% inflation-protected debt securities; 25% floating-rate loans, 25% commodity-linked notes and related investments, and 20% REITs and other real estate related investments.