Get on the Emerging Markets Train — with a 5.96% Yield

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

Markets continued their upward momentum this week, with the S&P 500 ending the week 1.42% higher. Most of your positions in your Dividend Pro portfolio rose as well.

Your current positions have several ex-dividend dates coming up, which will put pressure on some share prices, but will also boost your income before the end of the month.

With respect to your current option positions, I recommend that you close your position in your December $8 call options in Apollo Investment (AINV) at a loss before it expires.

This week’s Dividend Pro pick takes you into the world of fast growth and volatile emerging markets through a high-yielding bet on the entire sector through the SPDR S&P Emerging Markets Dividend ETF (EDIV). This exchange-traded fund (ETF) boasts a solid 5.96% yield and requires its constituent stocks to have positive, cumulative three-year earnings growth and positive per-share earnings during the past year.

Here’s why I’m recommending this bet on high-yielding emerging market stocks for a relatively short holding period.

First, December and January seasonally are the strongest time of the year for emerging markets. And based on my experience as a mutual fund manager, here’s the “inside scoop” on why this is so. Investment committees at the world’s largest mutual funds are now sitting down at the end of the year to make big-picture, or “top-down,” asset-allocation decisions about the global markets they favor for 2013. These funds start moving money into these markets by December, causing a noticeable jump in these relatively illiquid markets between now and about the third week of the New Year.

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Second, if you compare the S&P 500 to the MSCI Emerging Markets Index over the past three months, it’s clear that emerging markets have started to outperform the U.S. market after a long period of under performance. With the seemingly endless threat of the fiscal cliff in the United States, my sources in the London investment community tell me that global investors are starting to cut back their bets on the United States in favor of other global markets with bigger upside. The Emerging Markets Index has also just broken out to the upside from a three-month trading range — a very positive technical sign.

Finally, based on its past history, EDIV will go ex-dividend within the next couple of days, and the payout date will be on or around Dec. 29. So, if you buy today, you’ll receive your first dividend payment before the end of the year. As a point of reference, last year’s payout in Q4 was about 37 cents.

So buy SPDR S&P Emerging Markets Dividend ETF (EDIV) and place your stop at $42.00.

There are no options on this one.

Portfolio Update

Global X SuperDividend ETF (SDIV) rose 1.43% last week. SDIV paid out a dividend of 13 cents on Dec. 3. Trading back above its 50-day moving average (MA), SDIV is a BUY.

Two Harbors Investment Corp. (TWO) rose 0.86% this past week. TWO is billionaire David Tepper’s 23rd-largest holding in his red-hot hedge fund. TWO is a BUY.

PIMCO Municipal Income Fund II (PML) tumbled 3.26%, after several very strong weeks of out-performance  You should have received your monthly payout of 6.5 cents on or around Dec. 8. PML remains a BUY.

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Apollo Investment (AINV) rose 1.98%. AINV will trade ex-dividend on Dec. 14 for its quarterly dividend of $0.20, payable on January 4, 2013. As a percentage of AINV’s recent stock price of $8.27, this dividend works out to a quarterly yield of approximately 2.42%. Close your position in your December $8 call options at a loss. Trading above its 50-day MA, AINV is a BUY.

Omega Healthcare Investors Inc. (OHI) rose 0.22%. The company just received $700 million of bank loans to replace debt obtained last year. Above its 50-day MA, OHI is now a BUY.

PowerShares Preferred (PGX) was flat on the week. Preferred stock is a surprisingly good diversifier: it has low correlation to other income-generating asset classes like REITs, MLPs, corporate bonds, TIPS, and popular income ETFs. This monthly income payer is a HOLD.

Fifth Street Finance Corp. (FSC) rose 0.58%. FSC went ex-dividend yesterday for its monthly dividend of $0.0958, payable on Dec. 28. As a percentage of FSC’s recent stock price of $10.62, this dividend works out to approximately 0.90%.  FSC remains a HOLD.

CVR Partners, LP (UAN) rose 0.95% this past week. Still trading below its 50-day MA, UAN is a HOLD.

Rentech Nitrogen Partners, L.P. (RNF) rose 0.78%, after hitting close to an all-time high earlier in the week. RNF benefits from the low price of natural gas in the United States, a key input for the production of nitrogen-based fertilizer. Yielding 8.70%, and just below all-time highs, this fertilizer play remains a BUY.

Annaly Capital Management (NLY) ended the week slightly higher. With strong insider buying, NLY remains a HOLD.

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Peritus High Yield ETF (HYLD) rose 0.62%. This high-yield fund returned 12.9% this year, finishing more than one percentage point ahead of its passive competitors. Now above its 50-day moving average, HYLD is a HOLD.

Northern Tier Energy Trust LP (NTI) rose 1.72%. U.S. regional oil refiners remain hot, and NTI remains a BUY.

Apollo Residential Mortgage Inc. (AMTG) rose 1.39%. Fred J. Kleisner, a director at the company, bought $362,200 of shares recently. It’s always a good sign when insiders are buying. AMTG is a BUY.

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