by: Nicholas Vardy
With the S&P 500 up only 4.91% so far this year, 2014 is turning out to be a snoozer for the U.S. stock market.
But combine a flat-lining stock market with falling interest rates and this year is turning out to be a terrific one for income investors.
In fact, a handful of income investments in my firm Global Guru Capital’s “Double Your Dividends” investment program have already generated 10%+ gains only five months into the year.
And a casual glance at the charts confirms that they’ve done so with next to no volatility.
Throw in the promise of steady income — hearing the cash register ring each and every month — and these income investments in 2014 are as close to the “holy grail” of investing as you’ll ever see in the real world.
With that, here are the top-five best performing income investments in the “Double Your Dividends” Investment Program.
1. PIMCO Municipal Income II (PML) — 18.06% Gain
PIMCO Municipal Income II (PML) is an actively managed, highly leveraged municipal fund. The fund typically generates its large distribution by venturing down the credit spectrum into non-rated and junk-rated muni debt, focusing on the intermediate and long portions of the yield curve, and then leveraging its holdings.
The fund has maintained a level income-only monthly distribution of $0.065 per share since 2007. This translates to an above-average 6.53% distribution rate. PML has logged peer group-topping returns of an annualized 12.94%, over the past five years. The fund charges 0.65% of the average daily net assets, plus the proceeds from preferred shares.
PML has generated a gain of 18.06% so far this year.
2. Mortgage Real Estate Capped ETF (REM) — 15.01% Gain
iShares Mortgage Real Estate Capped ETF (REM) tracks the FTSE NAREIT All Mortgage Capped Index. This is a market-weighted index and screens components for size and liquidity. Most of REM’s holdings are in medium- and small-cap mortgage real estate investment trusts (REITs). REM has large allocations to two giant mortgage REITs, Annaly Capital Management (17%) and American Capital Agency (14%).
Unlike equity REITs, which generate income by managing properties and collecting rent, mortgage REITs are financial firms that engage in arbitrage on the spread between the short-term interest rate and income from mortgage-backed securities. REM has generated an annualized return of 11.62% over the past five years.
REM yields an impressive 15.15%, pays dividends monthly and charges a fee of 0.48% annually.
REM has generated a total return of 15.01% year to date.
3. PowerShares Preferred (PGX) — 11.18% Gain
The PowerShares Preferred (PGX) tracks the BofA Merrill Lynch Core Plus Fixed Rate Preferred Stock Index. The index includes preferred stocks that have a market cap of at least $100 million.
Preferred stocks are hybrid securities that have bond- and stock-like qualities. They are usually issued by highly leveraged companies like financial institutions, telecoms and utilities. Almost all of PGX’s holdings are issued by financial companies, which include banks, real estate firms and insurance companies. Preferred stock pays income on a regular basis and does not benefit from earnings growth of the issuing company. PGX has generated an annualized return of 11.02% over the past five years.
PGX yields 6.13% and pays out dividends monthly. It charges an annual fee of 0.50%.
PGX has generated a total return of 11.18% year to date.
4. Global X SuperDividend ETF (SDIV) — 11.09% Gain
The ETF tracks the Solactive Global SuperDividend Index, an equally weighted index consisting of 100 equally weighted companies that rank among the highest-dividend-yielding equity securities in the world.
Now, remember that “Global” doesn’t mean international. SDIV has about one-third of its investments in U.S. stocks. The remainder is invested in high-yielding companies in Europe, Australia, Asia, Canada and Latin America.
In terms of sectors, it’s no surprise that SDIV focuses on the “big four” of dividend investing — real estate, financial services, telecommunication and utilities.
SDIV yields an impressive 6.04%, pays dividends monthly and charges a fee of 0.58% annually.
SDIV has generated a total return of 11.09% year to date.
5. PowerShares Emerging Markets Sovereign Debt (PCY) — 10.26% Gain
PowerShares Emerging Markets Sovereign Debt (PCY) invests in U.S. dollar-denominated emerging-markets bonds. As such, it does not have any direct foreign-currency exposure. Emerging-markets sovereign bonds do carry credit risk, whereas U.S. Treasuries are “risk free.”
Thanks to improving fundamentals and relatively higher yields in emerging markets, demand for emerging-markets debt has skyrocketed during the last few years. Emerging-markets debt has also historically exhibited low correlations to U.S. bonds.
PCY yields 4.3% — a substantial premium over U.S. debt. It pays out monthly and has generated a 10.26% gain in 2014.
In case you missed it, I encourage you to read my e-letter column from last week about how India became the world’s #1 stock market. I also invite you to comment in the space provided below.