Income Off the Beaten Path
10/01/2008 12:00 am EST
Nick Lanyi, editor of High-Yield International, picks a couple of global funds whose high yields look very attractive.
As investors punished any stock remotely connected with financial services and real estate early this week, shares of ING Clarion Real Estate Fund (NYSE: IGR) took a hit. However, I expect it to bounce back much more robustly than companies involved with investment banking or mortgage lending, as this fund does not invest in these sectors.
Instead, it specializes in retail, office, industrial, diversified, health care, and hotel REITs around the world. While general economic activity plays an important part in its income stream because it affects demand for and the price of rents for commercial properties, IGR only has limited exposure (less than 10% of its portfolio) to residential real estate.
The credit crunch has an impact, of course. If banks aren't lending, developers can't raise the capital they need to build new properties—or, in some cases, remodel or refurbish old ones. However, I think the sell-off has been overdone, and I look for a strong rebound as sentiment improves about the global economy in the coming months.
Investors with no exposure to global commercial real estate should consider investing now, when the shares have been knocked down to enticing levels. (This fund currently has a 15.6% dividend yield, and 32.7% of its investments are held in the UK and Western Europe, while another 42.4% are in North America. It closed at $8.78 Tuesday—Editor.).
ING International High Dividend Equity Income Fund (NYSE: IID) owns a diverse mix of dividend-paying stocks from around the world, and uses a value approach to select individual companies. It also sells call options on foreign indices to boost yield. Because its focus on high-yield stocks results in above-average positions in financial services and energy names, the fund took a sizeable hit recently, but also bounced back strongly.
IID’s experienced managers are skilled at identifying undervalued securities, and they have had plenty of opportunities to bottom-fish for winners unfairly beaten up during the sell-off. While any exposure to financial services should be avoided by the most conservative investors, owning the sector through a fund with experienced managers is a safer route than trying to pick two or three stocks on your own.
I continue to feel very comfortable with this fund, which currently yields around 18%, despite the recent volatility. (61.3% of this fund’s investments are held in the UK and Western Europe, and 31.8% are in Asia, not including Japan. It closed at $10.40 Tuesday—Editor.)