Author Archive: Michael Foster

When I show you a chart like the one below, your first thought might be that we’re looking at, say, the recent stock performance of NVIDIA (NVDA)—or maybe a biopharma firm that just dropped a breakthrough treatment:

Not a Tech Stock—Just a “Boring” Index Fund

But you’d be wrong. What we’re looking at here is the iShares MSCI China ETF (MCHI), an index fund tracking the Chinese stock market, up to its peak early last week.

That jump is the direct result of the Chinese Communist Party’s recently announced stimulus package.

The gains have attracted the attention of Chinese day traders and speculators, as well as those in the West.… Read more

Normally when interest rates fall, we closed-end fund (CEF) investors are tempted to pick up a fund like the 7.3%-paying Royce Small-Cap Trust (RVT).

It seems like a particularly savvy move today, with this small cap–focused CEF trading at a 10.3% discount to net asset value (NAV, or the value of its underlying portfolio). Cheap!

But is that really a good value, or could RVT get cheaper still?

Let’s take a look, starting with small caps generally. Like large caps, they benefit as lower rates boost consumer spending. But there are two other factors that make falling-rate periods particularly advantageous for smaller firms:

1. They mean lower borrowing costs for investors, allowing them to invest on margin more than they would otherwise.

Having a diversified portfolio is pretty much Investing 101, right?

I mean, it’s one of the first things we all learn as investors. But there’s a problem here: Going for balance in “regular” stocks, bonds or ETFs can mean leaving income on the table.

To see what I’m getting at here, check out the average yields on two ETFs many people buy for stock and bond exposure. For stocks, I likely don’t have to tell you about the SPDR S&P 500 ETF Trust (SPY). It’s the popular S&P 500 tracker. And it yields a microscopic 1.2%.

There are plenty of options on the bond side, but let’s go with a fairly high-yielding ETF, the SPDR Bloomberg High-Yield Bond ETF (JNK).… Read more

Here’s an idea that might sound just a little bit odd at first: You can actually get retirement-investing advice that’s too conservative.

That may not sound like a bad thing, right? After all, who doesn’t want to be extra sure they have enough to clock out?

The problem with this, however, is that being overly conservative has the very real consequence of keeping us in the workforce much longer than we need to be.

I bring this up because I was thinking of the “4% rule”—which points to 4% as the amount of your portfolio you can safely withdraw in retirement—the other day.… Read more

Closed-end funds (CEFs), with an average yield of around 8%, are terrific for just about any investor—especially those looking to their portfolios to help pay the bills.

Heck, even if you’re not leaning on your CEFs for income, those big payouts are gold—you just reinvest them to boost your portfolio’s value and book an even bigger income stream going forward.

But of course, not all CEFs are great investments, with some best avoided unless they trade at big discounts to net asset value, or NAV, the key indicator of value for these funds. And sometimes even a great fund isn’t the best one to buy, despite a big yield and an impressive record.… Read more

I recently wrote about a trend that’s making income investors excited: After years of failing to produce decent returns, bonds are back.

Media outlets, including Bloomberg, have picked up on this. And my friends who work on Wall Street are talking about bonds more than I’ve ever heard them do so before.

That makes sense, given how strong stocks have been lately. With the S&P 500 up 21% since January as I write this, many folks feel they’re overpriced. That, in turn, makes bonds look more attractive as an alternative.

This is especially true if you’re looking for income; the Federal Reserve has started cutting interest rates and has said it plans to keep doing so.… Read more

At my CEF Insider service, a fund’s discount to net asset value (NAV, or the value of its underlying portfolio) is one of the first things we look at when deciding whether to issue a buy call.

That’s because it can tip us off to a bargain-priced CEF, just like price-to-earnings (P/E) ratios do for regular stocks. But as with P/E ratios, the discount to NAV is not the be-all and end-all when it comes to making a buy decision.

The Discount to NAV Is Just the First Step in Our Research …

It’s easy to see why some investors put too much weight on the discount to NAV, though.… Read more

When choosing between closed-end funds (CEFs), you might be tempted to put a lot of focus on fees. That makes sense. Nobody likes high costs eating into their returns.

But there’s more to CEF performance than just the expense ratio, and if you focus on buying the funds with the lowest fees, you might leave a lot of money on the table.

Because the truth is, there’s no clear relationship between fees and long-term returns. A CEF’s portfolio and the skill of its managers play a far greater role in determining its success than fees alone.

Breaking Down the Data: No Simple Relationship Between Fees and Returns

Let’s start with the data.… Read more

Sometimes as income investors we face a situation that sounds like a good problem to have: We have to pick among a group of very impressive investments!

That’s obviously much tougher than, say, picking between a stock or fund with a winning record and another with a losing one.

But when you think about the investment choices you’ve made over the years, I think you’ll find that picking between options that seem equally good is actually what you’ve had to do most of the time.

To get into how to make a call when you face this situation, we’re going to use my favorite high-income plays: closed-end funds (CEFs), which routinely yield 8%+.… Read more

With stocks back in “climb” mode (at least for now!), it could seem like a good time to look for a hedge against the next downturn.

If you’re looking for hedges that also pay big dividends, you might be considering resource funds—especially those in oil and gas, or maybe even gold.

Today I’m going to show you why you should resist this strategy, or at least be very careful about it. Closed-end funds (CEFs), which yield 8.3% on average today, are my beat at my CEF Insider service, so I’ll use CEFs (which we love, especially outside the resource space!)… Read more