With European sovereign debt? Nope. Municipal and state debt? Nope. Long-term U.S. Treasuries? Haha! Don’t make me laugh!
None of those are good places to generate income, for all the reasons I’ve discussed before — lousy economic fundamentals, the threat of rising interest rates, slumping investor demand for their bonds, and so on.
So where can you get some yield? What are some of the safer alternatives? Where the heck can you turn with the Federal Reserve waging a war on savers — by holding short-term interest rates near zero.
That’s what I want to help you with today …
“Safer” Sovereigns, Higher-Yielding Stocks, and MLPs Make Great Income Alternatives
Alternative #1: “Safer” sovereigns. Not all sovereign bonds are created equal. Portugal, Ireland, and Greece may be buried in debt, dealing with anemic growth or recession, and seeing their securities tank in price.
But the story is different in many other emerging markets …
China, India, Brazil, and others are benefiting from rising living standards, a flood of investor cash, and strong economic growth. Their credit ratings are going UP, not down.
So to me, their bonds are attractive both for yield AND potential capital gains. ETFs like the iShares JPMorgan USD Emerging Markets Bond Fund (NYSE:EMB) are one way to profit.
Or you can screen mutual funds using a tool like Morningstar.com to find the best-performing, highest-rated funds in the emerging markets category.
Go to the website, click on “funds,” then “fund screener.” You can select “taxable bond” as the fund group, then “emerging markets bond” as the Morningstar Category.
From there, you can drill down even further — rank the results by number of stars in the funds’ rankings, eliminate funds that haven’t returned at least 1 percent, 2 percent, or more for a specified period, and so on.
Alternative #2: Higher-yielding stocks. Many stocks offer attractive yields, particularly those in the utilities and consumer staples sectors. Those industries offer slow, steady, predictable growth, and the companies competing in them tend to yield more than the market as a whole.
The PowerShares QQQ (NASDAQ:QQQQ), which owns mostly technology and biotech stocks, yields just 0.76 percent while the diversified SPDR S&P 500 ETF (NYSE:SPY) yields 2.02 percent. That compares with 3.5 percent for the PowerShares Dynamic Consumer Staples Sector Portfolio Fund (NYSE:PSL) and a hefty 5.3 percent for the PowerShares Dynamic Utilities Portfolio Fund (NYSE:PUI) — seven times more than the QQQQ!
Alternative #3: MLPs — or master limited partnerships. These are corporate entities that distribute most of the income they generate from certain activities, predominately producing, processing, or transporting oil and natural gas.
Many of these MLPs have mid-to-high single-digit yields, and they offer the potential for capital gains. The Alerian MLP Exchange Traded Fund (NYSE:AMLP) is a recently launched ETF that gives you broad exposure to the sector.
Bottom Fishing? Wait Until You See the Whites of the Sellers’ Eyes!
None of these ETFs or funds will rise in a straight line. We’ll inevitably see some corrections along the way. But these are the kinds of sectors I’d focus on for yield.
Meanwhile, if you’re considering bottom fishing in muni bonds, long-term Treasuries, or any of the other sectors I’ve been panning here, my advice is simple: Don’t. You can catch small rallies if you’re extremely nimble. But the trend is still lower in price, higher in yield.
Instead, I recommend you wait for the right price and time — when you can see the whites of the sellers’ eyes. That’s when you should pounce and lock in juicy yields for the long term. I’ll do my best to let you know when I think the time is here.
Money and Markets (MaM)is published by Weiss Research, Inc. and written by Martin D. Weiss along with Nilus Mattive, Claus Vogt, Ron Rowland, Michael Larson and Bryan Rich. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaMare based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.
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