High Income Triple Play

10/09/2002 12:00 am EST

Focus:

Mark Skousen

Editor, Forecasts & Strategies, High-Income Alert

Economist and financial advisor, Mark Skousen, editor of Forecasts & Strategies, will present the opening remarks at The New York Money Show's gala black-tie fundraiser featuring Rudolph Giuliani.  The former New York City mayor will speak on “Leadership in Difficult Times.” Meanwhile, for those investing in difficult times, Skousen continues to focus on high-income investments.

“Interest rates are still sliding, with the ten-year Treasury note under 4%. Short-term rates are still under 2%, and I would be surprised if the Fed cut rates further. Even if it does, it won’t last for long. The economy is poised to recover, and higher interest rates are likely to follow. Ultimately, this is bullish for stocks, which will recover rapidly if Middle East tensions subside and US corporate earnings resume upward. Meanwhile serious problems overhang the US and world economy, so it pays to be diversified. Take advantage of high interest rate opportunities. Conservative investors should stress high-income investments–up to 50% of your portfolio.

Aberdeen Asia Pacific Income Fund (FAX AMEX) has shown strength recently. It continues to pay three-and-a-half cents a share each month, which it guarantees for the next 12 months. Value depends on interest rates and the value of the Australian dollar. Currently 60.2% of its portfolio is in AA bonds. FAX is still selling below its net-asset value, and I recommend it as long as it continues to do so.

Van Kampen Senior Income Fund (VVR NYSE) has stabilized. It started coming down when interest rates declined. Why? Because lower interest rates mean a reduction in the dividends that prime rate funds pay out. The price of the fund has fallen faster than the net-asset value, so today VVR is selling at an incredible discount from net assets–around 15%. Clearly, VVR qualifies as a solid bargain. I would be a big buyer now. It will start rising again when the economy recovers and interest rates go up.

Freeport McMoRan Silver Convertible D (FCX-D NYSE) is especially appealing, offering a low-risk, high-leverage way to invest in silver. With the metal at $4.50, the quarterly dividend is around 4.5%, with the stock selling at a modest 6% discount to its net-asset value. With silver at $5.50, the dividend yield rises to 5.5%, while the gain to redemption value would be 33%. Because of the dividend, there is downside protection. If silver were to drop to $3.75 an ounce and stay there for the next four years, you would still not lose money.”

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