For what lies ahead in the second half of the year, there is a lot of buzz surrounding the high-tech and biotech sectors. Last week, shares of Google (GOOGL) soared to a new 52-week high on stellar earnings, while shares of Amazon.com (AMZN) and Facebook (FB) vaulted to new all-time highs. Despite the negative headlines and volatility of late regarding growth in China, watered-down terms for a Greek bailout, a troubled deal with an untrustworthy Iran and a bear market in commodities, technology and technology stocks are where money wants to be involved.
Contrary to popular belief, income investors don’t have to be left out of the party. They just have to be creative and hunt for those income-bearing assets that have exposure to high-technology properties and enterprises. There are essentially three ways high yield can be achieved by way of technology: business development companies (BDCs) that are making loans with stock warrants attached to small to medium-sized high-tech companies; covered-call and managed distribution closed-end funds that own top holdings in blue-chip technology companies; and real estate investment trusts (REITs) that own properties in data storage facilities, research and development parks and assembly and processing plants.
At last week’s San Francisco MoneyShow, I laid out a list of no fewer than 10 such investments, in which yields range from 3.1-11.05%. What’s interesting is that the minor bump up in the 10-year Treasury Note yield from 2.20% to 2.35% has taken a toll on a number of these high-tech heavy-dividend-paying assets. In my view, that’s a big overreaction that provides an attractive entry point for several of the names I disclosed. Bond maven Jeff Gundlach of DoubleLine Funds, who attended this past week’s Delivering Alpha Conference and who is probably the best bond prognosticator in today’s market, believes the 10-year T-note yield will fall back to 2.0%, or maybe below that, by year-end. That’s a bold call, considering Janet Yellen’s rhetoric regarding the Fed considering a rate hike.
Either way, any move by the Fed will be nominal at best because the economy is still stuck in third gear and is well below the rate of growth that warrants any meaningful change in fiscal policy. Back to the high-tech sector, investors seeking serious yield should consider the Eaton Vance Tax-Managed Global Diversified Equity Income Fund (EXG), which is paying out a yield of 9.74% in the form of monthly dividend payments. One look at the top holdings of this closed-end fund, which utilizes an active buy/write, or covered-call, strategy, shows just why it’s trading up 12.3% year to date, including dividends.
| Google, Inc. | $93.50M | 2.95% |
| Apple, Inc. | $69.51M | 2.20% |
| Nike, Inc. B | $57.74M | 1.82% |
| Roche Holding AG | $56.75M | 1.79% |
| Prudential Corporation Plc | $55.43M | 1.75% |
| Home Depot, Inc. | $54.60M | 1.72% |
| NXP Semiconductors NV | $54.56M | 1.72% |
| Medtronic, Inc. | $50.32M | 1.59% |
| Vodafone Group Plc | $49.92M | 1.58% |
| Accor | $49.49M | 1.56% |
| Walt Disney Co. | $48.80M | 1.54% |
While the S&P 500 is higher by only 3% for the first six months of the year, the Nasdaq is up by 8% halfway through July. Clearly, leadership in big-cap tech is where growth is being rewarded. And if yield is a top priority, then funds like EXG offer a compelling alternative to traditional income securities that are right in the midst of where money is being best served.
In case you missed it, I encourage you to read my e-letter column from last week about why income investors can always find a bull market. I also invite you to comment in the space provided below my commentary.
