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2 Picks to Stay Ahead of the Weather

05/24/2011 10:30 am EST

Focus: ETFS

Bryan Perry

Editor, Cash Machine, Premium Income, Quick Income Trader, Instant Income Trader

These two ETFs provide yields of around 10% while protecting your portfolio from the markets' uncertain and possibly stormy near future, says Bryan Perry of Cash Machine in this exclusive interview with

Bryan, what are you suggesting people do now, in this uncertain time?

Right now, people do need income, so you can’t just cash everything out after the market’s made a big run, and then no one knows what to do about Washington, the big budget deficits, and a lot of turmoil around the world. The household budget doesn’t go away just because people want to step aside.

So it’s important right now that people make sure they find really stable income that still maximizes what’s out there in the high-yield world. For that reason, I’m recommending to Cash Machine investors that they find what I call “ballast-type securities,” which are all-weather type securities that can manage the stormy weather and still provide a 7% to 10% income stream.

Do you have some suggestions?

I sure do. There are a couple of ETFs out there that I think make a lot of sense right now. I do like the Dow Jones very much because it’s made of multinationals. Most of its companies generate 60% or more of their income around the world.

But it’s so small—it’s only 30 companies.

Exactly, but the point is they are representative of the export market that we do so well at. People want US goods and services around the world. We are very good at that, and it’s the leading index right now, and big money likes to stay in big mega-caps.

There’s an ETF called the Dow 30 Enhanced Dividend Premium & Income Fund (DPO). It has a yield of about 9%. They’ve got all Dow 30 stocks, but they ride options on about half of those stocks, and the fund is leveraged maybe 19% or 20%.

So they’re riding covered calls on half the portfolio, so you have upside with the Dow, but you’re bringing in a nice covered-call premium to generate about 9% income while still participating in the Dow Jones Industrial Average. That way you can stay in what I believe is the safest of the indexes right now—the most conservative of the three indexes—because financials are lagging so badly in the S&P 500 that I want to be in these multinationals that are big export companies, and still get that 9% income.

It’s a quarterly payer, trades right around net asset value, and I think it’s a very safe way for people to stay involved in the market, play in the big caps, and get their cake and eat it too with the income.

So, other than DPO, any other suggestions?

Sure. I also have the AGIC Convertible Income Fund (NCV).

Right now, we’re in the sweet spot for convertible securities, because interest rates may start to rise later this year or next year because of the weakness in the dollar. We’re certainly going to have to offer more for our money if the dollar continues to weaken, if they don’t get their act together in the budget crisis.

So what you want to do, if you want to be in the stock market, you can be in convertibles. Convertible stocks and convertible bonds allow those managers to have a bond equivalent, if you will, and if the underlying stock that the convertible bond represents moves up, they can convert it into common stock.

So if you have, say, a General Electric (GE) convertible bond, and the stock goes from $20 to $25 and it’s convertible at $23, then you get the nice ride up—and you don’t have a problem if rates go up and the stock market’s still going up, and you don’t have the problem of a falling bond price there, because it’s still tied to equity.

So that is a really good argument right now for convertible bonds, because rates are low, and they’re probably going to go higher in the next year or so, and at the same time they’re still bullish on the stock market. In that way, you can still be in a bond type of a security and have that trigger, if you will, that they can mechanize to roll into stocks, if that’s what you want to do, and convert it.

It’s a really great way to play the market, and also have a bond-type yield.

And keep that balance.

Yeah, they’re getting about 10%, and it pays monthly.

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