This might surprise investors who are experiencing high volatility with measly returns, but I can tell you with certainty that there are investment themes and sectors out there that are quietly scoring big returns in their own “stealth” bull markets.
The mainstream media and Main Street investors have stayed wrongly focused on the most popular big-cap growth names. The same market darlings that led the charge off the 2009 and 2010 lows stalled in 2011 and have really fumbled the ball this year, frustrating investors who didn’t count on having to day-trade out of trouble.
In this treacherous market landscape, the clear path to low-volatility returns is high-yield investment assets, which are seeing great gains and treating money well. Six sectors in particular have outpaced the total returns of all others while offering savory 7% to 15% yields on liquid securities that have benefited from capital appreciation.
- High-Yield Corporate Bonds. In contrast to the 1% to 2.5% yields on Treasurys and 3% to 5% yields on investment-grade bonds, non-rated corporate bond closed-end funds have yields averaging 10%. High-yield bonds have been a source of double-digit income and principal stability in the past five years. Fewer than 2% defaulted during the 2008-2009 recession. One great pick is the Credit Suisse High-Yield Fund (AMEX:DHY).
- Business Development Companies. Since 2009, banks and lenders have balked at offering credit to the small- to medium-sized businesses that create 80% of new jobs. Enter BDCs: These specialized finance companies make business loans at 12% to 14% interest. Most of Cash Machine‘s current BDCs pay yields of 9% to 12% with rising revenues, dividend payouts and share prices. One example, Triangle Capital (NYSE:TCAP), has produced more than a 60% total return so far for Cash Machine investors in the past 22 months.
- Mortgage REITs. As regulated investment companies, REITs must pay out at least 90% of all income, making them the highest-paying asset class. American Capital Agency (NASDAQ:AGNC), for example, buys only government-guaranteed Fannie Mae and Freddie Mac mortgages. The company borrows at less than 2%, then buys 3% to 4% mortgages and leverages them 8:1. AGNC pays out a dividend yield of 14%.
- Distressed Agency REITs. “Operation Twist” is all about buying distressed mortgages to help stabilize the market, and as the housing market recovers, mREITs are attracting smart money. PennyMac Mortgage Investment Trust (NYSE:PMT) has done well for Cash Machine subscribers, paying out a 10% dividend yield, giving us a 23% total return so far in less than six months.
- Natural Gas. Thanks to horizontal drilling and hydraulic fracturing, the United States has a 100-year supply of natural gas — a clean, green, cheap fuel. Its popularity has fostered the liquefied natural gas (LNG) export market. Coal won’t become price-competitive until natural gas is at $6 per mcf, and even though natural gas prices have risen from $1.70 per mcf to $3, the copious inventory means they won’t go above $4 anytime soon. Investors can join this trend for a 7% yield with Cheniere Energy Partners LP (AMEX:CQP), the only LNG terminal in the United States.
- Corn Fertilizer. The current drought is adversely affecting corn and grain prices, but demand remains high. With feedstocks for corn fertilizer — natural gas and petro coke — near all-time lows and fertilizer prices near all-time highs, profit margins for fertilizer makers look great. My recommendation in this sector is CVR Partners LP (NYSE:UAN) with 8%-plus yield.
With a blended yield of more than 10% income and double-digit capital appreciation potential, strategic high-yield investing should have the lion’s share of total assets in your portfolio. The results speak for themselves: Cash Machine‘s portfolio is outperforming the S&P 500, pays a double-digit yield and enjoys a low turnover. Money goes where it’s best treated, and in the current market, strategic high-yield investing is the sweet spot.
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