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How To Box Clever Against A Hostile Market And Score “Knockout” Yields Of 21.5%
Guest Editorial by Nathan Slaughter, Chief Investment Strategist, The ETF Authority
Managing Editor’s Note: Today, we welcome back our friends from The Street Authority, with a special piece on ETF investing. As you may know, ETFs offer investors a flexible way to capture the performance of an entire sector/industry/currency, etc. through just one investment. They offer diversity, flexibility, and a lower-risk way to invest in specific areas of the market. And in today’s column, Chief Investment Strategist of The Street Authority’s “ETF Authority” group will show you how to track down the highest-yielding ETFs. Enjoy. ~Martin Denholm, Managing Editor, Smart Profits Report
ETFs Are A Smarter Investment Choice In A Rollercoaster Market
It’s easy to feel pummeled by today’s market. But smart investors have started to realize that exclusively chasing growth stocks is like setting themselves up for repeated sucker punches - especially when there are better choices.
I’m talking about the 150 exchange-traded funds (ETFs) paying double-digit yields - some as high as 21.5%.
Sometimes, changing your strategy is the only way to succeed, regardless of whether it’s a business venture, investing, or even boxing. In fact, today’s investors would be wise to take a page out of boxing champ Muhammad Ali’s playbook…
Float Like A Butterfly, Sting Like A Bee
No one thought Muhammad Ali could come out of retirement and beat George Foreman. After all, Big George had positively murdered Joe Frazier and Ken Norton - the only two men who’d beaten Ali before.
It seemed it would happen again as the ferocious-hitting Foreman got Ali on the ropes, pounding him mercilessly.
But by Round 8, Foreman was exhausted. Ali, on the other hand, still had vast reserves of energy - despite taking a beating earlier. He turned on the speed, accuracy and raw power that the world had momentarily forgotten. Result? Foreman went down and Ali was heavyweight champion of the world once again.
So what can we learn from this?
Change Can Be A Good Thing
Faced with a new opponent, Ali had to change his approach. His rival could hit, but Ali saw through it and focused on his own stamina and devised a simple strategy.
Many investors today probably feel like Ali did, as Foreman battered him with punch after punch. They feel bloodied by the sub-prime meltdown, real estate woes, the financial sector crisis, and bruised by energy and commodity prices. Some have quit the game altogether.
After all, profiting from rising prices works great in bull markets, but it’s a tough strategy to pull off when the bears are prowling. In fact, it’s a classic example of making things harder than they need to be. There’s no point in fighting a market downtrend.
But that doesn’t mean you need to give up. You just need a change of strategy. If market conditions mean you can’t juice your portfolio with capital gains, then it’s time to focus on a strategy that does help generate income.
The Benefits Of Focusing On Income
Why shift to income? Simply put, companies that pay dividends tend to be very stable and represent mature industries. Many do business in non-cyclical sectors like utilities and these “defensive” companies pull in steady sales, even during tough times.
And dividend-paying investments fare much better during bear markets. For example, during 2000, 2001 and 2002, the dividend-paying stocks in the S&P 500 actually rose 10.46% while others sank 33.19%. And other 10-year periods have seen dividends provide the only return for the S&P.
So you can take a chance and continue to bet against the market. Or you can collect double digit yields on investments proven to weather the storm. I know which approach I’m taking - and ETFs offer dozens of outstanding choices for income investors.
In this area, high yields are the norm, not the exception. As of the end of July 2008, 198 ETFs sported yields of more than 10%. Only 132 common stocks can say the same.
And ETFs are particularly convenient those who simply invest to pick up some consistent, extra income. Why? Because more than 500 ETFs pay distributions on a monthly basis, rather than a quarterly or yearly rate.
Score Your Own K.O. With These ETF Choices
Take a look at these three high-yielding ETFs, all of which are generating double-digit income streams:
- One “flexible” ETF we found boasts a 12.0% yield and has an impressive track record of adjusting its strategy to capture the best gains the market has to offer in high-yield bonds, royalty trusts and other equities. That strategy - which includes buying stocks with low P/E ratios while shortening stocks with high P/E ratios - has really paid off over the last year.
- Another appealing choice invests in real-estate investment trusts (REITs) - entities required by law to pass along 90% of their earnings to shareholders. Our favorite in this space owns a portfolio that’s double-diversified by both property type and geography. It’s an approach that is paying off with a yield of 14.8%.
- The third ETF focuses on Asian stocks, which owns mature, dividend-paying companies such as telecoms, financials and utilities. And it pays a 21.5% yield. This fund has increased its dividend payout by 200% in the past three years.
When the opening bell rings on Wall Street tomorrow, take the opportunity to think differently. Remember Ali and Foreman’s “Rumble in the Jungle” and focus your efforts on your eighth-round comeback, even if the past seven rounds have been abysmal. This is your chance to deploy a knockout income ETF strategy.
And The ETF Authority can be next to you in the ring, providing the coaching you need as you seek the best places to put your money to work. My research staff and I just put the finishing touches on an in-depth report that will show you the three best ways to profit from ETFs right now.
This special report will reveal more on how to use ETFs to capture double-digit dividend yields - including more information about some of my favorite picks - and how to profit from today’s most promising sectors and foreign markets. (Our favorite foreign chart-leader is an ETF focused on Brazil, which has returned 702% over the past five years!) For more information, just click here.
Best regards,
Nathan Slaughter
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