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History shows that conservative
sectors and industries often hold up
better than the broader market during
sell-offs. But if share prices in those
industries do get dragged down with the
rest of the market, this makes a rare
opportunity to lock in sizeable -- and
stable -- yields. For instance, which of
these conservative closed-end funds
currently sports a whopping
18.8% yield after investors
indiscriminately sold off shares?
A.) Macquarie/First Trust Global
Infrastructure/Utility Dividend & Income
(MFD)
B.) Hyperion Total Return Fund (HTR)
C.) BlackRock Enhanced Dividend
Achievers (BDJ)
D.) Morgan Stanley China A Share Fund (CAF)
E.) Reeves Utility Income Trust (UTG) |
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Published:
December 22, 2008
The
correct answer is 
(A.) Macquarie/First Trust Global
Infrastructure/Utility Dividend &
Income (MFD)
The Macquarie/First Trust Global
Infrastructure/Utility Dividend &
Income Fund invests in a blend of
gas utilities, electric utilities,
transportation infrastructure,
multi-line utilities, and water
utilities. The fund is managed by a
subsidiary of giant Australian
banking company Macquarie.
A third of the fund's assets are
invested in "other," a category that
includes income-producing assets
such as telecom utilities, oil
pipelines, and healthcare
facilities. About 20.0% of the fund
is invested in Australia. Canada
(8.0%), Italy (5.4%), and Spain
(8.6%) are also well represented;
the rest is spread around the world.
A majority of holdings are in the
United States (39.3%).
What the holdings have in common is
the ability to generate recurring
cash flow--cash flow from monthly
bill payments by an array of
customers, the majority of whom will
continue to use the same amount of
electricity or water despite the
economic slowdown. That's a big
reason recurring-revenue
infrastructure plays and consumer
staples tend to hold up better than
the broader market during sell-offs,
and many expect them to continue
this performance during the
recessionary period over the next
several months. It's also a big
reason utility funds like MFD lend
stability and relatively safe
dividends to a portfolio. However,
somewhat more aggressive areas --
such as airport authorities -- could
also lend a capital-appreciation
bounce down the road.
MFD has paid a quarterly
distribution of $0.425 for eight
straight quarters. In a major
recession, some of its holdings
could cut their dividends, which
could translate to a lower payout
for MFD, but there is little chance
the fund will ever reduce the payout
so much as to make it an unpalatable
to income investors. Even if the
distribution amount is reduced by a
third, the fund would still yield
roughly
12.5% if purchased today.
One reason MFD's yield is currently
so high is that investors' flight to
safety has meant share prices of
nearly everything have been pushed
lower. The resulting discount gives
investors a chance to pick up the
shares for cents on the dollar--a
trend in which MFD is but one of
many. As such, MFD is only one of
several top picks StreetAuthority
editor Nick Lanyi has made in his
latest issue of the
High-Yield International
newsletter. In it, Nick zeroes in on
a variety of opportunities investors
have to scoop up big yields now and
see big appreciation
later--something everyone's hunting
for these days. To see Nick's other
picks, and to learn more about
High-Yield International,
please visit this link.
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