3 Foreign ETFs with Exceptional Yields

This cyclical bull is seriously winded. Consider:

(A) Good news has crossed the newswires all week long… and the markets have shrugged. In fact, they’ve hit a wall at intra-day highs in the S&P 1035 area.

(B) The areas most responsible for early bull market gains are reversing course; that is, tech and energy have been the most sluggish. Similarly, resource-related producers like Brazil and stimulus champ China have been sliding.

The question isn’t whether or not the markets are ready for a pre-ordained September “fall.” The question is whether sidelined money will take continued recovery cues to immediately minimize any pullback or will that sidelined cash wait for a show-me October earnings season as well as preliminary Q3 GDP growth.

In the meantime, investors should probably be considering their post-pullback “Buy List.” In so doing, they would probably want to consider countries or regions that provide an organic hedge against the US dollar in addition to substantive annual yields for a margin of safety.

Here are 3 ETFs that boast more than $250 million in assets (e.g., liquid investments); what’s more, each has more than a 5%+ annual yield.

(1) iShares MSCI Singapore (EWS). One of the reasons for the very attractive 5% yield is a near 50% weighting in the financial sector. It’s also the reason for P/E ratio close to 12 when China is close to 30!

That said, analysts are forecasting 4.2% growth for 2010 which is higher-than-average for many SE Asian peers. And this is a country with strong trading ties with China.

(2) Vanguard Europe (VGK). There’s not a lot of love for Europe these days. Yet France and Germany have already emerged from the ashes of recession… and they spent far less than the U.S. to do so. And health care expansion doesn’t seem to be on the table either.

The problem, of course, is the pan-European projections for growth are pretty low. And then there’s the uncertainty of the amount of the annual dividend that one should receive in December. Based on several sources, it should approach 6%. That one-time payout may make for a reasonable purchase as a hoped-for correction finishes. (VGK is in a definitive uptrend.)

(3) iShares JP Morgan Emerging Market Bond (EMB). Perhaps the greatest irony of the emerging market story is that investors are most intrigued with the growth and opportunity of stocks. Few seem to recognize that the debt of a diversified group of emerging market stalwarts can benefit from a weakening US. dollar, asset shifts away from stocks into bonds, and a 5.5%-plus annual income stream.

This fund has only been able to accrue 4.5% in 2009. Yet its uptrend suggests it is a great place to look for diversification as well as future income and appreciation.

Full Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. The company may hold positions in the ETFs, mutual funds and/or index funds mentioned above.

Comments

[Brian P Shriver]

Thanks for your excellent work. One quibble...

As far as I know, EMB invests only in US-dollar denominated emerging market bonds. This ETF wouldn't particularly benefit from US dollar weakness.

To gain the benefit of US dollar weakness, you'd have to invest in local currency emerging market bonds. CEW is about the best you can do with ETFs.

2009 Aug 27 05:47 PM

[TucsonSpike]

IMHO we do not really know the yield of EWS as it has a very irregular dividend history and the last dividend was June 23 at an annualized rate of 1.2%. VGK only pays a dividend once a year in December, and the last time I checked Europe was in a recession. EMB, on the other hand, pays monthly dividends, although the amounts vary somewhat. So of these three, I would suggest EMB to be the superior investment.

2009 Aug 28 05:46 PM