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It’s Time to Tiptoe Into Europe

Target high yield through this U.S./European bond fund


The market is ready to cast Europe’s troubles to the wind on the slightest bullish news from that part of the world — and who can blame investors for being tired of every negative headline over there sending the market into panic mode? Just last week, bulls got the kind of headline they wanted in the form of Europe pushing out austerity deadlines to PIIGS nations, a group which commonly includes Portugal, Ireland, Italy, Greece and Spain.

From the perspective of the United States, nothing could be more bullish than seeing other markets get healthy, as it would buttress our market at a time when there is some slippage. Weaker-than-expected U.S. data for the month of March has ignited concerns that economic growth in coming months will not live up to the heightened expectations that were germinated by better-than-expected data for January and February.

The bottom line is that there are a lot of moving parts in the mix right now.

The market’s lull two weeks ago helped many overheated names work off overbought conditions, which set up nicely for another leg up last week. This more cautious tone helps support the case for high income tremendously, acting like a magnet for cash that’s seeking out the best place to go against this economic backdrop.

With that, I recommend that you tiptoe into Europe with the Babson Capital Global Short Duration High-Yield Fund (NYSE:BGH). This closed-end fund’s current assets consist of 67% U.S. and 20% Western Europe. That being said, I expect that if and when the European fiscal situation improves, the U.S. weighting will come down and exposure to European debt will increase.

According to BGH’s management, the underlying strategy is to take advantage of pricing differentials between bonds in U.S. dollars and Western European bonds (that are in euros) to achieve a higher relative return. At around 18% leverage, BGH is generating a hefty 8% dividend yield; shares have improved more than 5% year-to-date, and currently are trading right around their net asset value.

Even better, BGH goes ex-dividend in just a few days, on April 18, for a May 1 payout of 16.77 cents per share. Get in here under $25.25 and don’t miss out, because this is a nice way to start bottom-fishing across the pond by way of the debt markets.

Bryan Perry is editor of Cash Machine, a newsletter focused on dividends and income investing. His newest service, Extreme Income, also focuses on dividend investing with “income boosters” like momentum plays, option strategies, and more.

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