Opportunities in Foreign Debt

| About: Templeton Global (GIM)

Using the Correction to Improve Your Portfolio: The recent, and very possibly ongoing, correction is in the process of offering up some opportunities to improve portfolios, especially for those, like myself, who are running a retirement portfolio.

Because the top two primary tenets of my portfolio are preservation of capital, as well as income, I’ve been fairly heavily positioned in bonds (primarily sovereign debt). As of Friday’s close, 27.5% of the portfolio is invested in that particular sector. Aside from providing income, fixed income exposure tends to dampen the volatility of the portfolio.

Given the turmoil in Europe, one might reasonably question if now is the time to be buying foreign sovereign debt. But as often is the case, the market tends to throw out the baby with the bathwater, painting every security in a sector with the same brush. Although this seems to be happening currently with foreign debt, two stocks (actually closed end funds), are now at attractive levels.

The first, and perhaps most compelling, example is the Templeton Global Income Fund (NYSE:GIM). It closed on Friday at $9.25. The NAV (per CEF Connect) is currently $9.62, so it's trading at a 3.85% discount to NAV. Over 52 weeks, the discount/premium has ranged from -4.19% to + 7.40%, so it's close to the lower end of the range. The yield is 5.78%, and the monthly distribution has been nudged upward from $.042 to $.045, as of May.

The top 10 holdings are as follows:

  • Korea (Republic of): 4%; 10 June 2012; 5.25%
  • Korea (Republic of): 4.75%; 10 Dec.2011; 4.88%
  • Russian Fedn: 2.25%; 31 Mar. 2030; 4.50%
  • Sweden: 5.25%; 15 March 2011; 4.17%
  • Poland: 5.75%; 25 April 2014; 4.09%
  • Indonesia: 11%; 15 Nov. 2020; 3.22%
  • Queensland: 6%; 14 Aug. 2013; 2.98%
  • Argentina: 3.389%; 03 Aug. 2012; 2.58%
  • New Sth Wales: 5.5%; 01 Mar. 2017; 2.56%
  • Brazil: 10%; 2.15%

The other CEF is also a Templeton managed fund, Templeton Emerging Mkts. Income (NYSE:TEI). While not quite as attractively priced as GIM, some of the froth has been removed. Closing at $14.23 on Friday results in a discount of -8.02% to the NAV of $15.47. The 52 week range is -12.24% to + 0.21% .

Obviously, the emerging markets are considered a bit “riskier”, so that may well account for the greater discount. TEI yields 6.92% and pays quarterly at a rate $.25/sh.

Disclosure: Author holds long position in GIM, TEI

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