In this week’s Macro Theme, we review our “Slowing Dragon” theme. We began discuss...
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4 Emerging Market High-Yield Funds
09/23/2011 3:00 pm EST
Sovereign debt in many emerging markets is safer and more attractive than the "safe" bonds from the biggest developed markets, and Neil George of The Pay Me Strategy shares four easy ways to buy into these markets in this exclusive interview with MoneyShow.com.
Neil, we saw all sorts of reaction to the S&P downgrade of US debt. What do you think about that?
Well, I think the key thing is, it's really a sort of recognition-or a reckoning, if you will-of reality. The idea that for so many years, we've basically been told that the riskless countries, the countries like the United States, the major Europeans like France and Germany and Britain, they're the ones that are supposedly the safe places, the countries that can't fail.
And yet the countries that are termed the so-called "emerging markets," countries like China, Indonesia, Malaysia, Singapore, and so forth, these are the countries that people are deemed to be risky and the idea that they get lower credit ratings by S&P and Moody's.
But the reality is that we're finally coming about to is the countries that are supposedly the safe ones, they're the ones without the cash, without the exports, without the jobs, and now they've got credit problems. The countries that supposedly are the risky ones, they're the ones that have the jobs, they have the revenue, they have a ton of reserves, and they're exporting like crazy.
So, what does an investor do?
Well, the investor really needs to continue to think beyond what he's told to do, as so much of Wall Street continues to peddle the same stuff, year in and year out.
And that even through our current sort of ups and downs, what we've seen in the marketplace, a lot of people are looking at Treasuries as being that parking lot for safety. So either you're putting your cash in the mattress, or you're lending money again to Uncle Sam, and its being done on an individual as well as an institutional level.
My primary advice is to stop focusing on the US as the primary place for investment, and look at countries and markets that actually have the real goods behind the recognition.
Even though they might have ratings of B, BB, BBB, or A or AA, many countries like China, Indonesia, the Philippines, Malaysia, Brazil, and so forth, if you look at the real balance sheets or the income statements that these countries have as individual nations, they would obviously be in much better shape than the primary markets of Europe and the US.
So you're looking at short-term government securities from foreign governments.
Well, I think the key thing is that you look at this, and it's not a short-term movement. This has been a long march.
In other words, these countries have been working very steadily to transform themselves. We all have seen and heard the stories of China. We've seen and heard the stories of Brazil.
But many investors haven't heard and experienced this huge buildup in growth and wealth in the middle class in countries like Indonesia. Many people aren't aware of what's been occurring in the Philippines or in Malaysia. Some of have been maybe exposed to Singapore, but not enough.
So the idea is that you can invest in some of the government securities there, the bonds of these countries, that are still paying much higher rates of yield and are still trading as if they're the risky ones.
Now, for the average investor to go out and buy these things individually, it'd be a bit of a pain. However, what I've been doing myself, and recommending again on MoneyShow.com as well as at MoneyShow conferences, are four very specific closed-end funds that invest in these exact same securities.
So you have one, which is the Allianz Bernstein (AWF), which trades in the New York Stock Exchange. You have the Templeton Emerging Markets Income Fund (TEI). The third would be the Western Assets and Emerging Markets Income (ESD). Last one is PIMCO Strategic Global (RCS).not run by Bill Gross, but part of a German subsidiary of Allianz.
Combined, you're looking at an average yield that's paid for most of these on a monthly basis of between 8% and 9%, throughout all of the upheavals we've seen from 2008 to the current time.
If you look at the upheavals that we saw back in the 1990s with the dot.com fiasco, you can go back further, collectively, these have all been performing at double-digit total returns year in and year out despite a lot of the conflicts. It's an easy way to get access to these really strong-credit countries that aren't getting the recognition quite yet.
And in full disclosure, do you own these?
I've owned them for a number of years, and I've been recommending them in my publications for a number of years.
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