Plodding Profits from Cash Cows
01/14/2005 12:00 am EST
Neil George remains bullish on global bonds, which he consider a place for your "serious cash." During 2004, US Treasuries returned 4%. But his "Cash Cow" holdings earned a 15% return. Here, he looks at four favorites - all NYSE-listed global bond funds.
"We don’t see much changing in the months to come that will dramatically threaten our core recommendations. It may be exciting to speculate, but that’s for a very small portion of our portfolios. For your serious cash that you can’t afford to throw around, we stick with what we know best. As such, the base of our Growth Portfolio is comprised of four closed-end bond funds. Pimco Strategic Global Government (RCS NYSE), Morgan Stanley Global Opportunity Bond Fund (MGB NYSE), Templeton Global Income (GIM NYSE) and Templeton Emerging Markets Income (TEI NYSE). They best represent how we capitalize on assets that simply plod along, providing price appreciation and regular dividend checks.
"Each of the four are structured in a similar fashion. They’re funds that have a finite amount of capital with their shares traded on the New York exchange. Investors buy or sell shares based on market prices. Some days folks are willing to pay more than what the assets and liabilities tally out at—some days less. This is referred to as the premium or discount and is similar to other companies’ price-to-book ratio. These bond investment companies, just like stocks, trade above or below their net valuation. We'd note that both the share price and the actual portfolio values for these funds has been climbing over the last several years. all Along the way, investors are still getting paid reasonable dividends. The average of these dividends is over 6.5%.
"We have each of these funds in the Growth Portfolio for specific reasons. Pimco owns a core group of bonds, primarily of the US government, with short to intermediate maturities. Then it’s able to efficiently invest through contracts with major banks to buy and hold investments that gain from improving bond markets in other nations outside the US. The Templeton funds invest directly in short to intermediate bonds of both first-tier and emerging governments. And the Morgan Stanley fund follows a similar, but more aggressive, buying strategy of comparable bonds.
"We invest in these four because of the ease of accessing the best bonds without having to go directly to local markets. Each investment companies’ management follows our way of realistically picking bonds that will gain more investor interest, pushing up prices and generating solid yields for shareholders along the way. The proof is always in the performance. Over the past several years, as prognostications have come and gone—telling you whether bonds are good or bad news—our four investment companies keep plodding along. All four are great buys at current prices. They’ll continue to sustain our justifications by driving up their stock prices, while paying us into 2005 and beyond."