Income ETFs: Higher-Yielding Investing Ideas

MSN Money profiled a man with the moniker of "The Amateur." That name doesn't exactly inspire confidence. Nevertheless, I was interested to see what Mr. Van Meerten was recommending for 2009.

Here's the quick run-down:

IShares JPM Emerging Market Bond ETF (EMB)
IShares iBoxx $ High Yield Corporate Bond ETF (HYG)
IShares Lehman Aggregate Bond ETF (AGG)
IShares S&P Preferred Stock ETF (PFF)
Market Vector Nuclear Energy ETF (NLR)

In a round-about way, one can see that Mr. Van Meerten is high on yield/interest, from every facet of the fixed income risk spectrum; specifically, high quality bonds via AGG, low quality bonds via HYG, foreign bonds via EMB, and preferred shares of the companies that the U.S. government itself has invested in via PFF. The only pure stock play (a mere 20% of the recommended purchases) is coming from the beaten-down alternative energy space in nuclear energy, NLR.

Ironically enough, I wouldn't disagree with most of the Amateur's recs. After all, I put together a lazy portfolio that included the spread of risk across income investing, including my positive feelings for IShares JPM Emerging Market Bond ETF (EMB) and IShares S&P Preferred Stock ETF (PFF).

On the flip side of the coin, MSN's columnist misses some of the best opportunities when he bypasses A grade corporate debt in the iShares Investment Grade (LQD). Favoring "junk bonds" via the high-yield, poor grade corporate debt in the iShares HighYield Corporate Bond (HYG) may be premature. But hey... it's like they say: "Nobody's ever wrong, they're just early!"

The other part that the author merely alludes to is the possibility of achieving growth through the S&P 500 SPDR Trust (SPY). There isn't a recommendation for it, but there's a mention of how one would prosper regardless of whether struggling companies are replaced by good growing companies in the index.

Personally, after 2008's near startling underperformance, a few dividend-oriented equity positions should have been mentioned. With a juicy 6% yield on Global Telecom (IXP) and a 4% yield on Utilities (XLU), I think plenty of investors might wish to invest in "infrastructure-related" sectors. This is the big talk from the Obama camp... and the yield may indeed make the rocky road worthy of traveling.

Do you need to protect against additional loss? Absolutely! Every investment needs to have a point at which the protection of capital is more critical than the potential for reward. So use your stops!

Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Advisor with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.

Comments

[dernogard:]

Why wasn't JNK mentioned. Cheaper and better than HYG if you're looking for a junk-bond ETF.

Jan 08 10:28 AM

[Roger Knights:]

I second the recommendation of JNK. (For the moment I'm out of it, though.)

Jan 08 10:36 AM

[Alexander Li:]

in 2008, I operated my Chinese A stock according to the contra trend of FXP in order to hedge my Chinese stocks. But unfortrunately, it went down more sharply than Hong Kong Chinese stocks. ridiculous.

Jan 08 11:54 PM

[Allah:]

I was thinking about PFF if it comes down to 26. Maybe I should have picked it up last year when Gary was recommending it at 45.

Jan 09 12:37 AM

[Jake2:]

Thanks, Gary. Good job.

Jan 09 01:57 AM

[Tao Man:]

Gary, your long-standing positive feelings for PFF haven't translated into profitable advice. Let's hope that the economy turns around faster than expected because that is the real question when talking about high yield. You got it right though, you're not wrong, just way too early.

Feb 19 01:41 PM

[Jim Van Mee...:]

Gary,

Thanks so much for commenting on my article on the MSN Strategy Lab. Some of your readers asked some questions I'd like to address. I've been entering some of these online contests just to test out my theory that you can make money by closely following the market, buy what is moving now and protect your hunches with stop losses. I never sell just to make room for something that is doing better.

I use Barchart.com for my screener because it is so easy to use and I found it on Forbes Best of the Web recommendations. I buy those ETF's that increased the most last month but only if I can chart them and see that they are still having upward momentum. When they fail to stay above their 50 day moving average they are culled and if there are ETF's that meet my buy criteria, I replace them.

Since the Strategy Lab only gives me $100K to work with, I try to buy around 20 positions at $5K each. If I can't find a positions that meets my criteria I'll let that ride in cash until something comes up in my screener.

In stock long and short portfolios I use the same logic except I get my stocks off of Barchart 65 day new High/Low lists and then sort for frequency.

I don't think my theory could be used in a 100 million dollar mutual fund (you can't sail a battleship using speedboat tactics) but it can be used effectively by the average investor that wants to manage his own portfolio with a minimum of expense.

Thanks again or writing about my picks.

Jim Van Meerten
The Amateur Msn.com Strategy Lab

Contributor on:
MSN.com Strategy Lab
Marketocracy.com
SeekingAlpha.com
InvestorPlace.com
MoneyShow.com

Jun 21 12:06 PM