Protected Principal Retirement Strategy: Global Income - A Must

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 |  Includes: CHW, GHI, IAE, IAF, JGH, LCM
by: Akaralph

Just read a proprietary article published by O'Shaughnessy Asset Management that addresses just how difficult it is in the current market environment to generate higher levels of income. The article made the following (among other) pertinent points:

  • The present market environment is the worst in 140 years for generating income
  • Global dividend paying stocks are inexpensive and offer compelling yields
  • Global dividend paying stocks offer solid diversification when taking into consideration currencies, interest rates and fiscal conditions
  • These stocks should be capable of generating income and appreciation for years to come

With that in mind I have put together a few ideas for future consideration for the Protected Principal Retirement Strategy portfolio.

At present investment levels the portfolio is over weighted with MLPs, energy and business development companies, and under weighted in real estate investment trusts and foreign stocks. To attain an effective level of diversification in the foreign asset class I will look to closed-end funds as a means of filling the foreign void.

The following six closed end funds are worth further investigation:

Calamos Global Dynamic Income (NASDAQ:CHW)

A former holding, Calamos is comprised of a combination of equities, corporate bonds, convertibles and other debt instruments.

1. Objective - Capital appreciation and high current income.

2. Discount/Premium - Discount of 8.17 percent to net asset value (NYSE:NAV).

3. Distribution - Presently pays $.062/month (8.38 percent yield, 7.69 percent yield on NAV).

4. Distribution Breakdown - About 55 percent income/45 percent return of capital.

5. Recent Performance - In 2012 the price increased by 25 percent and the NAV increased by 18 percent. Year-to-date the price is up 6.4 percent and the NAV is up by 3.1 percent.

6. Portfolio Composition - Presently 93 percent global and six percent U.S. Energy, information technology and healthcare are the largest sector investments.

7. Fees - 1.50 percent.

Global High Income (NYSE:GHI)

GHI invests primarily in emerging markets through government and corporate bonds and other debt instruments.

1. Objective - High current income and capital appreciation.

2. Discount/Premium - Discount of 3.0 percent to NAV.

3. Distribution - Presently paying $.0806/month (7.31 percent yield, 7.09 percent yield on NAV). Distribution has been increasing.

4. Distribution Breakdown - 100 percent of the monthly distribution is income.

5. Recent Performance - In 2012 the price increased by 15.5 percent and the NAV increased by 18.1 percent. Year-to-date the price is up 3.1 percent and the NAV is unchanged.

6. Portfolio Composition - Assets are allocated over several emerging markets including Brazil, Russia, Peru, Mexico etc. Only four percent to US investments.

7. Fees - 1.48 percent.

ING Asia-Pacific High Dividend (NYSE:IAE)

IAE invests in equities throughout the Asia - Pacific region, but not Japan.

1. Objective - Total return through equity investment and through use of an options writing strategy.

2. Discount/Premium - Presently at a slight (0.38 percent) premium to NAV.

3. Distribution - IAE pays a quarterly distribution of $.355 (8.87 percent yield and 8.86 percent yield on NAV). Distribution was reduced from $.396 in October 2012.

4. Distribution Breakdown - The distribution is about a 50/50 split between income/short term gains and return of capital.

5. Recent Performance - In 2012 the IAE's price increased by 22 percent while the NAV was up 21 percent. Year-to-date the price is up 1.8 percent and the NAV is up 1.7 percent.

6. Portfolio Composition - China, Australia and South Korea have the heaviest concentration of the fund's investments at present.

7. Fees - 1.49 percent.

Aberdeen Australia Equity (NYSEMKT:IAF)

IAF invests almost 100 percent of their assets in Australian equities.

1. Objective - The fund's stated objective is current income and incidental capital appreciation.

2. Discount/Premium - The present fund price is at a 4.27 percent premium to NAV. Too high to consider buying here; however, IAF rarely sells at a discount.

3. Distribution - The present distribution is $.25 quarterly (yield of 9.09 percent and 9.52 percent yield on NAV).

4. Distribution Breakdown - The distribution is currently 50 percent income, long term gain and short term gain and 50 percent return of capital.

5. Recent Performance - In 2012, IAF's price increased by 28 percent and the NAV increased by 22 percent. Year-to-date the price is up 5.4 percent and the NAV is up 4.3 percent.

6. Portfolio Composition - The portfolio is presently weighted 98.5 percent Australian and 1.5 percent U.S. equities. Financials and materials comprise almost 60 percent of the portfolio.

7. Fees - 1.32 percent.

Nuveen Multi-Currency Fund (JGT)

I have mentioned JGT a few times in past articles because of their exposure to international currencies. They are almost wholly invested in foreign government bonds at the present.

1. Objective - The objective of the fund is current income and total return. This is accomplished through short-duration global bonds and various currency contracts.

2. Discount/Premium - The fund is presently selling at a 10.23 percent discount to NAV.

3. Distribution - The fund pays a quarterly distribution of $.2975 (a yield of 8.96 percent and an 8.05 percent yield on the present NAV).

4. Distribution Breakdown - The distribution split is almost 50 percent income and 50 percent return of capital.

5. Recent Performance - In 2012 JGT returned 16.6 percent on its price and the NAV increased by 13.8 percent. Year-to-date the price is up by 3.2 percent and the NAV has increased by 0.7 percent.

6. Portfolio Composition - U.S., Brazil and Mexico comprise almost 90 percent of JGT's current investments. These are primarily focused on AAA rated government debt.

7. Fees - 1.03 percent.

Advent Claymore Enhanced Growth & Income (NYSE:LCM)

This fund is presently invested in convertibles, equities and bonds, most of which are rated B, or below (of some concern).

1. Objective - Current income and capital gains through equities, convertibles and use of options strategies.

2. Discount/Premium - The fund is currently selling for a 9.47 percent discount to its NAV.

3. Distribution - The quarterly distribution is $.21 (for a yield of 8.37 percent; 7.57 percent on the NAV).

4. Distribution Breakdown - Currently at 57 percent income and short term gain and 43 percent return of capital.

5. Recent Performance - For 2012 the price increased by 10.6 percent and the NAV increased by 12.5 percent. Year-to-date price increase has already been 10.3 percent, while the NAV has only increased 4.5 percent.

6. Portfolio Composition - Their portfolio is 100 percent global. Convertible debt, equities and corporate debt occupy about 85 percent of LCM's portfolio.

7. Fees - 1.80 percent (on the high side).

Conclusion

The Protected Principal Retirement Strategy portfolio is not large enough to eventually purchase all of these closed-end funds.

Based upon my research to date, and from the data presented above I will be focusing future research primarily on CHW, GHI, IAE and JGT.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This article does not constitute a recommendation to either buy or sell and of the stocks mentioned.