A Bet on High Yield Junk Bonds — “Global Style”

Nicholas Vardy

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

With both the S&P 500 and the Dow Jones down a hairsbreadth last week, it was essentially a flat week for the stock market.

Not so for your DividendPro portfolio where all but two of your positions rose, including Rentech Nitrogen Partners, L.P. (RNF), which soared 14%. Many of your other positions are now also trading at or near 52-week highs.

This week’s DividendPro recommendation is a bet on one of the red hot sectors in the income investing world, the Market Vectors International High Yield Bond ETF (IHY).

IHY tracks the performance of the BofA Merrill Lynch Global ex-U.S. Issuers High Yield Constrained Index. The Index is comprised of below investment-grade debt (“junk bonds”) issued by corporations located throughout the world excluding the United States, and which are denominated in euros, U.S. dollars, Canadian dollars or pound sterling issued in the major domestic or Eurobond markets.

With yields on domestic investment grade debt at record lows, many investors are looking overseas or towards lower quality debt to beef up returns. You see that in the remarkable growth of IHY. Launched only in April, today it has over $209 million in assets, having grown nearly tenfold since late September.

IHY has a current 30-day yield of 5.85%, and it pays dividends monthly. Equally importantly, it also offers solid capital appreciation, having risen over 15% since bottoming in June.

In many ways, IHY is the international equivalent of the iShares iBoxx $ High Yield Corporate Bond Fund (HYG) — which invests in U.S. junk bonds.

But when you compare its performance to IHY on the chart below, it’s clear that, for now, international high yield is the place to be.

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Chart forMarket Vectors Intl High Yield Bond ETF (IHY)

So buy the Market Vectors International High Yield Bond ETF (IHY) at market today and place your stop at $25.40. Disclosure: This is a position I hold on behalf of my clients at my firm Global Guru Capital.

Portfolio Update

Global X SuperDividend ETF (SDIV) rose 0.36% last week. SDIV is now approaching its record high set in November. SDIV is a BUY.

Two Harbors Investment Corp. (TWO) jumped 3.47% this past week. Although the stock’s current 18.8% headline yield overstates its true annual yield, which is closer to 11.2%, the special dividend of Silver Bay (SBY) stock you are likely to get in March makes TWO extremely attractive. TWO remains a BUY.

PIMCO Municipal Income Fund II (PML) rose 0.44%. Your monthly distribution of 6.5 cents in the coming days remains tax free. Back above its 50-day moving average (MA), PML is now a BUY.

Apollo Investment (AINV) soared 5.42%, hitting yet another 52-week high. The company will report its third quarter results for the period ended December 31, 2012, on Wednesday, February 6, 2013.Trading above its 50-day MA, AINV is a BUY.

Omega Healthcare Investors Inc. (OHI) rose 1.81%. With baby boomers getting older and retiring to nursing homes, OHI is well positioned to profit in the years ahead. Back above its 50-day MA, OHI is now a BUY.

PowerShares Preferred (PGX) rose 1.15% on the week. Trading just a hair below its 52-week high, this monthly income payer has a yield of 6.47% and is now back to a BUY.

Fifth Street Finance Corp. (FSC) rose 1.21%. FSC will trade ex-dividend tomorrow, Jan. 11, for its monthly dividend of $0.0958, payable on Jan. 31. As a percentage of FSC’s recent stock price of $10.81, this dividend works out to approximately 0.89%, so look for shares of Fifth Street Finance Corporation to trade 0.89% lower — all else being equal — when FSC shares open for trading on Friday. FSC is now a BUY.

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CVR Partners, LP (UAN) jumped another 5.88% this past week. UAN’s expansion project at its Coffeyville, Kan., fertilizer facility is expected to increase UAN’s production capacity to more than 3,000 tons per day. Trading just under an all-time high, UAN is a BUY.

Rentech Nitrogen Partners, L.P. (RNF) went through the roof, skyrocketing 14%, hitting a new all-time high. The fertilizer master limited partnership didn’t release any company-specific news, but it and rival Terra Nitrogen have had huge success in the space as farm prices remain high enough to justify expenses to enhance crop yields. As long as the natural gas Rentech Nitrogen needs in order to produce its fertilizers stays cheap, the company should keep doing well. RNF remains a BUY.

Annaly Capital Management (NLY) rose 2.23%. Annaly’s current price is still far below the book value of over $16. A cash dividend of 45 cents per common share is payable on Jan. 29 to common shareholders of record on Dec. 28. The ex-dividend date is Dec. 26. NLY remains a HOLD.

Peritus High Yield ETF (HYLD) rose 0.80%. Now trading just below its 52-week high, HYLD is a BUY.

Northern Tier Energy Trust LP (NTI) dropped 4.49%. The business case for NTI remains intact. It obtains inexpensive crude. The crude is derived from Canadian fields and Bakken oil crude production. Northern Tier Energy can sell the refined products at Brent crude oil prices. That’s a money-making formula. NTI remains a BUY.

Apollo Residential Mortgage Inc. (AMTG) recovered 2.04% after going ex-dividend. The company declared a quarterly dividend of $0.70 per share of common stock for the fourth quarter of 2012 and a special dividend of $0.35 per share of common stock. That’s a 4.88% dividend payable on January 31, 2013, to common stockholders of record on December 31, 2012. Back above its 50-day moving average, AMTG is a BUY.

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SPDR S&P Emerging Markets Dividend ETF (EDIV) dropped back 1.42%. Emerging markets firms are upping their dividend game this year with the expected payouts from the 300 largest non-bank stocks in the MSCI Emerging Markets Index expected to rise to $52.2 billion from $48.9 billion last year. EDIV is a BUY.

UBS E-TRACS 2x Wells Fargo Bus Dv Cm ETN (BDCL) jumped 3.42% in its first week in your portfolio, hitting a fresh 52-week high. The underlying index includes 28 business development companies, which lend to small and mid-sized companies at high rates and may also take controlling interest in the companies. BDCL remains a BUY.

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