Skousen: High-Income Investing

03/07/2003 12:00 am EST

Focus:

Mark Skousen

Editor, Forecasts & Strategies, High-Income Alert

Dr. Mark Skousen is both a leading financial advisor and prolific author on freedom and economic theory. While many have lost money in the bear market, Skousen and his followers have reaped the rewards of a successful high-income investment strategy.

"I would like to talk about a strategy that I have used for about 20 years. One area where I've had pretty good success is high-income alternative investments for those who need income with the potential for capital gains. I would say that about 90% of the time this strategy works...10% of the times is doesn't work..there's no magic formula that works every time.

"'The strategy is investing in closed-end income funds. Closed-end funds are investment companies that invest in bonds, convertibles, dividend-paying stocks, etc. These funds can trade for more than their net asset value or the value of the individual investments - or for less than the net-asset value. And of course, we are going to look for closed-end funds that sell for less than their net asset value. Let's go through some of my specific recommendations, to give you an idea of how this strategy works.

"For conservative investors, our direct recommendation is the Van Kampen Senior Income Fund (VVR NYSE). This is a primary fund currently yielding about 6%. But if short-term interest rates rise it could make quite a bit more. And the discount would disappear. That would be a good one. In terms of prime-rate funds, there are loans given out to major corporations around America. They make loans at the prime rate, which is just over 4%, the funds pays out 6%. How do they do this? Because it's selling for less than its net asset value. So you get what can be called a super dividend. Why are they selling below net asset value? Because the Federal Reserve has engineered for the first year or two a low-interest-rate strategy. They have cut rates 11 times. As a result, the Fed Funds rate is under 2%.

"I also like the Masters 100 Fund (MOFQX), which is managed by Ken Kam. This is a very interesting story. For aggressive investors, I'd recommend the China Fund (CHN NYSE). I think the Chinese are the wave of the future. They are very aggressive. They come here to the US in droves, and they are very aggressive sellers for manufacturing, and so on. The China Fund is already up 15% this year and could go substantially higher. Finally, a flyer would be Indico Technologies (CA:IND Canadian Venture exchange) a very risky Canadian penny stock."

 

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