Income Funds: The Audacity of Hope

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 |  Includes: IGOV, ISHG, JGH, RTR, RWJ, RWK, RWV, RWW
by: Thomas Smicklas

I have been looking at (and investing in a few) income-related funds in addition to current ETF bond and preferred/higher yield securities throwing off income within my portfolio. A regular stream of e-mails to me from readers on these and similar investments indicate a logical interest towards obtaining maximum interest while preserving capital.

An overlooked series of income-oriented ETFs are marketed under the RevenueShares banner run by Vincent T. Lowry (CEO of VTL), an experienced handler with over eighteen years of experience in the business. He has been running the show at VTL since 2004. The six current funds in his batch include the RevenueShares Large Cap Fund (NYSEARCA:RWV), RevenueShares Mid Cap Fund (NYSEARCA:RWK), RevenueShares Small Cap Fund (NYSEARCA:RWJ), RevenueShares Financials Sector Fund (NYSEARCA:RWW), RevenueShares ADR Fund (NYSEARCA:RTR) and the latest, RevenueShares' Navellier Overall A-100 Fund (RWV).

As stated in their promo , RevenueShares "is pioneering a new approach to... ETF investing - born of common sense, anchored in the latest research and applied across the broad market. Using a patent-pending investment methodology, RevenueShares identifies known Indexes - such as the S&P 500 (NYSEARCA:SPY), S&P MidCap400, S&P SmallCap 600 - and rank its constituent members by company revenues rather than market capitalization."

The funds by that measure are supposed to resist growth or value bias. Back testing has shown that a revenue weighted index has historically produced attractive returns over time. Although management has reduced fees to an ETF acceptable level (.45-.60%), the fees if not reimbursed may have ranged from 1.23%-5.03% per ETF.

Looking at the actual, not back-tested, results - check them out yourself, expenses, portfolios and fine print in the explanatory documents- I have decided to pass on this ETF group. The Navellier A-100 is brand new, but my thought is that using a well-known personality to highlight a fund is not how to pick a product, even under the best of circumstances. And the present market situation is anything but.

Nuveen has an interesting product to juice up your fixed income yield. The Global Government Enhanced Income Fund (JGG), a CEF, is trading at $16.08/share, which is a hefty 10.77% discount from net asset value. With a current distribution rate of 9.70%, JGG appears to be an attractive holding for the investor who likes some Tabasco on their enchilada, as 20% of a recent publication of the portfolio is currently in higher-risk foreign government and bank securities to go along with the 80% parked in U.S. government-backed securities. Fees are approximately 1.05% (without Nuveen subsidies, the actual fee would be over 1.50%) and the portfolio turnover appears to be high. If one is a friend of the CEF concept, this security is worth a look for both the yield and the discount to market value.

I like the iShares' newest additions to their fixed income lineup.

The S&P/Citigroup International Treasury Bond Fund (NASDAQ:IGOV) has a Japan-heavy but otherwise balanced Euro-Centric portfolio of intermediate average maturity (8.25 years) yielding 3.78%. 83% of the securities have a AAA-AA rating, at least as of today - who knows about tomorrow? The expense ratio is .35%. My chief concern is that over 57% of assets are denominated in EUROs.

The S&P/Citigroup 1-3 Year International Treasury Bond Fund (NASDAQ:ISHG) will be added to my portfolio. Utilizing a similar regional portfolio is IGOV, but with an average maturity of 1.87 years, a yield of 3.64% with expenses of .35%, I believe this ETF makes more sense given the current economic and political climate than any of the above in this post.

With international financial and economic and political breakdowns, US government printing presses operating at white hot speed printing greenbacks to devalue the trillions of debt in the not too distant future and God knows what else, keeping your assets within a short reach makes sense. Not falling prey to those wishing to wrestle your hard-earned cash into the latest brilliantly conceived, perhaps even foolproof investment vehicle brings to mind the best kept secret in the investment world: almost nothing turns out as expected.