Retirement Trio: Growth and Yield

07/14/2014 9:00 am EST

Focus: FUNDS

Robert Carlson

Editor, Retirement Watch

Our strongest performing managed portfolio has been the Retirement Paycheck portfolio; this is our strategy for investors who want above-average income (we target a yield of 5% to 6%) as well as some capital gains with the high risks of the highest yielding investments, explains Bob Carlson, editor of Retirement Watch.

DoubleLine Total Return (DBLTX) anchors this portfolio and is generating a yield of 4.7%. Jeffrey Gundlach positions the fund conservatively, enabling its net asset value to remain fairly stable.

He believes interest rates aren’t likely to rise for several years. That view caused him to buy some longer-term Treasuries and other interest sensitive investments when rates rose in 2013.

About half the fund is in agency mortgage securities insured by one of the government-sponsored agencies. About 30% of the fund is in non-agency mortgage securities; they pay the fund high yields and generate a lot of cash.

Preferred securities are a good investment in this environment; these are hybrids of common stock and bonds and pay higher yields than bonds from the same companies.

Cohen & Steers Income & Securities (CPXCX) is actively managed and takes a global approach, weeding out securities from the lowest-quality companies. Banking is 49% of the portfolio, insurance is 23%, and real estate is 10%. The fund yields 5.3%.

A recent addition to the portfolio is DNP Select Income (DNP), a closed-end fund that invests primarily in utility stocks. I like this closed-end fund for several reasons.

In 2012, it sold at a premium to net asset values of 40%, and now the premium is under 6%. The fund also used leverage of about 27% to increase its yield and results.

The fund also has a steady distribution policy, holding at a rate of 6.5 cents per share per month since 1997. It holds about 65 stocks and tends to hold stocks for four to five years. The current distribution yield is 7.6%.

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