Emerging Yields

02/03/2006 12:00 am EST


Carla Pasternak

Editor, The Income Investor

Carla Pasternak is a noted expert in the area of income investing, whose advice is made even more valuable by a newsletter that is designed with separate sections based on various levels of yield and risk. For her top picks, she looks to Chile and Russia.

"An unrelenting series of 13 rate hikes lifted the dollar to its strongest point in four years and boosted the attractiveness of dollar-denominated assets. That was last year. This year, I expect to see the reverse side of the coin. As dollar-boosting rate hikes come to an end, investors may well start turning their attention to other currencies, such as the euro and euro-denominated securities tracked by my two top selections for 2006.

"Emerging country funds such as The Chile Fund (CH NYSE) are likely to be on investors' radar screens in the year ahead. With its super-size 23.5% yield based on last year's humongous $4.34 dividend payout, The Chile Fund is very speculative but also has significant upside. Given that its provided investors an average 58% return year after year for the past decade and a half since its inception, it's really not as speculative as the high yield suggests. Although its yield is sky-high, its investments are actually quite down-to-earth. The portfolio focuses on such essential engines of economic growth such as power generators, retail chains, and paper makers.

"Central Europe & Russia Fund (CEE NYSE) is the more conservative of our choices. This closed-end fund paid a $3.05 dividend in December, giving it a 6.7% yield. The fund has an average 1.26% expense ratio, giving it an effective yield of 5.4%. However, total returns (share price plus dividend) have been far higher. Last year, the fund delivered a 54% return and over the past three years, shareholders have enjoyed similar outsized gains, with average returns of nearly 50% a year. Although the share price has rocketed +69% this past year, the shares are still selling at a slight discount to their net asset value. As such, now may be an opportune time to scoop up some shares."

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