News Analysis date published New: 
Monday, December 12, 2011 - 09:00
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Monday, December 12, 2011 - 10:27
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Monday, December 12, 2011 - 09:00

The Tool to Capture the Highest Yields on Earth

Monday, December 12, 2011 9:00 AM

There are about a thousand of them listed on the U.S. exchanges.

They track everything from the S&P 500... to gold... to Treasury bonds... and much more.

They are basically nothing more than portfolios of stocks, bonds or commodities that trade on the major exchanges as a single security. But underneath a placid exterior, one of America's fastest-growing asset classes just reached a key milestone: Total assets invested in U.S. exchange-traded funds (ETFs) surpassed $1 trillion for the first time.

This represents the culmination of a remarkable episode of growth. The first U.S.-traded ETF was launched on Jan. 29, 1993 -- so it took fewer than 19 years for the ETF industry to crack the $1 trillion barrier.

To put that in perspective, it took the mutual-fund industry (first launched in 1924) 66 years to surpass $1 trillion in assets.

Assets invested in ETFs have grown at a 31% annualized pace since 2000 -- compared with just 6% annual growth for mutual funds. And alongside the growth of ETFs is the growth in closed-end funds (CEFs).

The differences between CEFs and ETFs are small -- both allow you to buy into a basket of securities with one simple transaction. And you can buy them throughout the day, just like a stock.

Yet many investors don't realize just how powerful a tool ETFs and CEFs can be for income investors.

Let me give you an example. I've told you several times about the abundance of high-yielding stocks around the world (at last count, we found 412 companies based outside the United States paying more than 12%).

And there are hundreds of foreign stocks listed on the major U.S. exchanges. But there are tens of thousands of foreign stocks that don't trade in the United States. Buying these stocks can be difficult for the average investor.

ETFs and CEFs break down all these barriers, allowing investors to buy broadly diversified baskets of dividend-yielding foreign stocks without paying higher commissions to their broker or dealing with foreign currencies.

In short, they can make buying a portfolio of high-yielding stocks from say, Brazil, as simple as buying a share of Wal-Mart (NYSE: WMT).

And thanks to these funds, investors can capture some pretty significant returns and yields that would otherwise be untouchable.

In my High-Yield International portfolio, we hold shares of the AllianceBernstein Global High Income Fund (NYSE: AWF). AWF invests in bonds from around the world -- including foreign-government bonds from emerging markets and U.S. corporate high-yield bonds.

Normally, it would be next to impossible for average investors to buy the securities AWF holds. But with the fund, you can access them all in one simple transaction.

In High-Yield International, we locked in a 17.1% yield when we purchased AWF in March of 2009. And since then the fund has brought a total return of more than 160% to anyone who followed our lead. Today, even after the rebound, the shares still trade with a 8.4% yield.

Risks to Consider: Despite these positives, these funds aren't perfect. Investors can often earn higher returns by picking individual stocks and there are management fees that cut into returns.

Action to Take --> But by allowing serious income investors to access some of the highest-yielding securities on the planet as simply as a share of General Electric (NYSE: GE), Wal-Mart, or Apple (Nasdaq: AAPL), the extra costs are usually worth it.

[Note: As I said, there are many high-yielding investments outside the U.S. borders. I've found more than 400 of these "other" companies paying 12%-plus yields... and thousands more paying above 6%. But most U.S. investors have no idea that these securities even exist.

Meanwhile, many of the world's wealthiest investors -- including Warren Buffett -- have been quietly cashing in on them for decades. Watch this free presentation to get more details about these 12%-plus yields.]

Paul Tracy does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC owns shares of AWF in one or more of its “real money” portfolios.