Right now, I can get more than enough bang for my buck in fixed income, energy infrastructure, and arbitrage strategies. BWG is one investment I like, highlights Tim Melvin, editor at Underground Income.
The new year has started much like the old year, with inflation and interest rates topping the headlines. Stocks have caught a bid based on the belief that the Federal Reserve is almost finished raising interest rates and that we can go back to what the financial markets looked like pre-inflation and pre-pandemic.
Whatever happens the rest of this year, assuming we will go back to what markets were before 2020 is unrealistic. Without zero-percent interest rates, stocks must trade on earnings potential, and with an economy that will—at best—slow down and a more likely trip into a mild recession, earnings are unlikely to fuel a massive rally.
That brings me to Legg Mason Brandywine Global Income Opportunities Fund (BWG). It has a broad mandate to invest in income-producing securities all over the world. The fund owns bonds issued by governments, agencies, and corporations worldwide.
One of the main attractions to the fund is that after months of impatiently waiting for it to happen, the U.S. dollar has finally rolled over and begun to lose ground to other global currencies.
The Brandywine Global fund has large stakes in several emerging markets, including Brazil, India, and Mexico, where the country’s economic conditions are an outstanding choice for fixed-income investment. All of them have interest rates much higher than this here in the United States and could see rate reductions rather than increases in 2023.
That, along with tailwinds from a declining dollar, could provide substantial capital gains and a high-income stream.
The fund also owns corporate high-yield bonds, a market I have been waiting to enter at a high discount to net asset value for some time. So far, BWG has provided the only opportunity to achieve this. When I first recommended the fund, it was trading at a 13.42% discount to net asset value, which is well above where we can buy U.S. high-yield funds right now.
The discount and yield have declined since our original purchase as buyers have pushed the share price a little higher and the discount a little lower. However, the fund is still yielding over 12%, so I would use weakness to buy shares if you still need to do so.
Recommended Action: Buy BWG.
