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Fund Favorites: Three Closed-End Winners for Dividend Lovers
At High-Yield International, we realize the prospect of investing abroad can be daunting. Often, investors aren't sure of how they can purchase international securities (although we have a special report dedicated to this topic), which companies to invest in, or how to keep tabs on these firms. Luckily, international investing can be easier than you ever thought possible, thanks to the emergence of international funds. And in today's report, we'll show you just how simple it is to not only gain invaluable international exposure, but also earn a handsome income stream with international funds.
(1.)Why International Funds Make Sense for Income Investors
For a variety of reasons, funds make sense for international income investors:
First, funds provide instant diversification across many companies. Buying a share of a fund is the equivalent to buying a part of dozens of companies at once. That said, diversification among funds does vary. Some funds concentrate a large amount of their assets in the manager's favorite stocks -- if one firm gets in trouble, this could cause serious problems for the fund. So it is important to study a firm's portfolio before investing. Meanwhile, others make a real virtue of diversification, ensuring that one company's blowup can't torpedo the fund's returns. Again, investors should be cautious, as those funds carrying too many securities can have a difficult time beating the broader averages.
Second, international investing can sometimes be difficult due to limited information. But closed-end funds and mutual funds have expert managers and research teams (similar to High-Yield International) that do this work for you. These management teams can vary, but they usually consist of several people, with many located in the region or country the fund focuses on, allowing for a first-hand point of view of the companies they invest in.
Furthermore, these management teams consist of professional analysts; their knowledge and techniques can help uncover problem firms before they hurt the fund or find promising companies that may elude the average retail investor. So rather than tracking down a foreign company, doing research on its business, and then keeping up with that firm on a consistent basis, a fund conveniently does this for you.
Third, some countries remain difficult for individual investors to access (even though the barriers to cross-border investing are coming down fast). However, with large amounts of capital and trading know how, funds are able to easily purchase foreign stocks.
And we know some investors may be wary of investing on foreign exchanges, or perhaps don't have the ability to do so with their current brokerage account. Yet we also know that many would still like the safety that comes with diversifying internationally. For these investors, international funds are especially helpful. In fact, all the funds profiled in today's report trade on a major exchange in the U.S. And since they are also closed-end funds, you can easily trade them with your regular broker, just as you would any stock.
Fourth, the specialization of funds is becoming more appealing for many income investors. Today, there are funds that not only focus on one specific region or country, but also on one type of investment objective -- value, growth, or income. Now, international income investors have more choices than ever among funds that offer not only access to lucrative international markets, but to high-flying international dividends as well.
(2.)The Three Ways to Play International Funds
Investors have three basic choices when seeking a professionally managed international fund: open-end funds, closed-end funds, and exchange-traded funds (ETFs).
Open-end funds are the traditional mutual funds with which most investors are familiar -- and that make up the bulk of most offerings in retirement plans, including 401(k)s. A money-management company collects money from investors and puts it to work in a portfolio of stocks (or other securities) chosen by a professional portfolio manager or management team, according to criteria set out in the fund's prospectus. Importantly, the number of shares in the fund is unlimited -- new shares are issued whenever someone wants in. So money comes in and goes out on a daily basis, whenever existing shareholders redeem their shares or newcomers want to buy more. The share price, or net asset value (NAV), is reported by the fund company daily based on the underlying value of the fund's portfolio holdings.
Closed-end funds share some characteristics with open-end funds -- a professional money manager or team of managers invest in a portfolio of securities according to criteria laid out in the prospectus, and the fund's NAV is reported every day. However, closed-end funds have a fixed number of shares, which investors buy and sell to each other on the open market, much like a stock. Since there are limited number of shares (hence the term closed-end), the fund's share price can deviate from the NAV, based on supply and demand for shares of the fund. When the share price is higher than the NAV, it is said to be trading at a premium. When the share price is lower than the NAV, the fund is trading at a discount. A premium generally indicates that investors are optimistic about the future performance of the portfolio; a discount can indicate pessimism -- or simply reflect the risk involved in the investment.
Exchange-Traded Funds are similar to closed-end funds in that their shares trade on exchanges, just like stocks. However, ETFs are designed to accurately reflect the value of a certain index of stocks or other securities. Instead of providing a way to participate in the returns of a portfolio selected and traded by a professional manager (closed-end fund), ETFs allow for minute-by-minute trading of a fixed basket of stocks or other securities. Since this index can be tracked in real time, any deviation between the value of the ETF and that of the index is usually closed immediately by traders. (With a closed-end fund, that's impossible -- holdings can change at any time, and they're usually only reported twice a year.)
For high-yield international investing, closed-end funds are normally the way to go. That's because few open-end funds focus on high-yielding foreign stocks, and those that do tend to be so diversified that they struggle to produce benchmark-beating returns. As for ETFs, their focus on an underlying index usually means they aren't weeding out stocks with low yields or no dividends at all. But several quality closed-end funds share our emphasis on countries and regions that tend to have a lot of high-yielding securities and some funds even explicitly aim to generate high yields.
We recently scoured the investment landscape is search of closed-end funds offering both international exposure and solid income potential. Our search uncovered quite a few opportunities, but three in particular stood out...
END OF FREE CONTENT
The remainder of this report is
available exclusively to paid subscribers. In it, we provide
in-depth analysis of three income funds cashing in on the boom in
international markets. These include:
 A
fund that yields an amazing 11.0%
while trading at an enormous discount of
-10.5%.
One fund that returned +25% in 2007 on top of a gain of +40% in 2006
-- all the while yielding 5.5%.
A
specialized fund that focuses solely on one of the fastest-growing
economies in the European Union. In addition to strong capital gains
potential, the fund offers an 11.0% dividend yield.
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