We are pleased to report that on our one-year anniversary, Global Income Edge’s Conservative Portfolio is delivering a 5% annual yield, and our Aggressive Portfolio and REIT Portfolio are delivering annual yields of 6.8% and 7.1%, respectively,

Global Income Edge was launched a year ago to find foreign and domestic income-paying securities that take advantage of powerful economic trends. The need for income has become acute, ironically, because of the effects of other powerful economic trends. Central bank stimulus and loose monetary policy around the world have pushed yields to historical lows and have forced income investors to pursue high yields at greater risk.

But we believe income investors deserve better than chasing junk bond yields, yields in high-risk frontier markets or dividends paid by high-risk companies. And investors should not have to place all-or-nothing bets on highly cyclical industries.

The strategy that we developed to fill the higher-income void is to invest in the world’s top global companies that have economies of scale, competitive advantage and pricing power, and which ride strong business and demographic trends. We believe that many global multinationals with investments in both developing and developed nations are best positioned for yield, growth and lower risk.

Furthermore, we sought firms with strong, fortress-like balance sheets that would produce income that could weather the volatility and risks of today’s economy.

And not less than three months after launching Global Income Edge, our portfolios were put to the test. In October 2014, with the end of Federal Reserve stimulus and the start of the collapse in oil prices, stock markets around the world dropped.

The losses (not including dividends) of the Standard & Poor’s 500-stock index and the Nasdaq Composite were 5.10% and 6.4%, respectively. Our Conservative Portfolio lost less than 2%. And that doesn’t include dividends. At the time, the S&P dividend yield was 2%, while our portfolio delivers above 5%.

But what we’re equally proud of is that not only did our portfolios preserve wealth, they generally preserved or enhanced principal. During the year, our Conservative Portfolio delivered between a 7% and 10% total return, or between 2% and 5% in additional value in stock appreciation in addition to the dividend yield.

Our Aggressive and REIT portfolios generally broke even, performing within a 3% total return range, plus or minus. This was an accomplishment, as these portfolios are more sensitive to a slowdown in global growth. We expect them to excel as growth strengthens.

The Drivers of Value

The performance of our portfolios was driven largely by our Best Buy picks. The strongest drivers of value in the portfolios were in telecom, utilities infrastructure, healthcare, and asset management.

We picked two telecom companies in our Aggressive and Conservative portfolios that delivered top results. They fit our strategy perfectly, as they have established operations in their respective developed economies while expanding into emerging markets that offer growth. And a consolidation in the European telecom market also helped boost valuations.

Our #1 Best Buy pick in our Aggressive Portfolio was French telecom Orange (NYSE: ORAN), which we sold for a 24% gain in late February. Our #1 Best Buy Pick in our Conservative Portfolio has been Vodafone (NYSE: VOD), which has risen almost 16% plus a 4.6% dividend yield since it was added to the portfolio last August, for a whopping total return of 20.6%. VOD is a Buy up to $39.

As noted, companies in the power and utilities space also delivered strength and performance to the portfolio. Our replacement for Orange as #1 Best Buy in the Aggressive Portfolio, Macquarie Infrastructure (NYSE: MIC), also has delivered stock appreciation as high as 26% (though that figure is 10% at present given the recent market pullback). MIC has a 5.25% yield, producing a total return this year of between 15% and 20%.   

Macquarie Infrastructure is part of our Buy American investment theme, developed earlier this year, as the firm is laser-focused on investing in U.S. infrastructure. Still our Aggressive Portfolio top pick, the firm and its initiatives are covered in an update on page 5. MIC is a Buy up to $90.

The other high-performing company this year was from the Conservative Portfolio, a #3 Best Buy at the time, Duke Energy International Geracao Paranapanema. The stock skyrocketed 54.5% on December 11. This was the Brazilian subsidiary of Duke Energy, one of the largest U.S. energy utilities.

We sold DEIPY that day as the increase in stock represented 20.62% on the holding since we put it in the portfolio in August, and it was a hard-won gain. The stock was down by that much in October as a result of a sell-off in reaction to the Brazilian presidential election.

In the area of healthcare, which has been a strong trend, various firms in the portfolio have contributed to the strong growth of the portfolios, though some of these investments did have their ups and downs. My colleague and our in-house healthcare expert, Benjamin Shepherd, offers a retrospective on our existing healthcare holdings on page 3.

Rounding out the companies that delivered the most growth were firms involved in asset management or financial services, such as AllianceBern–stein (NYSE: AB). AB stands to benefit from the extraordinary sums that
investors put into mutual funds for
retirement every year.

According to Morningstar, investors poured more than $160 billion into mutual funds last year and have $14 trillion invested. Our #3 Best Buy,
AllianceBernstein has appreciated between 14% and 20% and offers a dividend yield of 6.78%, for a total return of over 20%. AB is a Buy up to $30.

The gains from our Best Buy picks and other investments more than offset the losses from some of our other holdings that were hurt by the oil-price collapse and the banking and REIT sectors being oversold.

Last year, we eliminated our exposure to the oil-and-gas sector with the sale of Seadrill (NYSE: SDRL) in the Aggressive Portfolio and Kinder Morgan (NYSE: KMI) in the Conservative Portfolio.  Seadrill was crushed by the sudden collapse in oil prices, forcing it to eliminate the dividend, but we were proactive and sold KMI for a gain to help mitigate the loss. 

Having lived through previous periods of falling oil prices, we believed investors were better off taking a small loss and redeploying the capital than waiting for an oil price rebound. Further, in times of economic stress, oil firms historically have not felt honor bound to continue paying a dividend. That’s why we cut our exposure at the first sign of trouble, painful as it was.

As far as our other holdings, some in the global banking sector are down, but we think this is a blip. As the global recovery strengthens, the banking sector will once again have wind in its sails as consumers take out loans and increase their savings.

The Federal Reserve isn’t likely to hike rates aggressively in the coming years, according to various economic surveys. Investors will need alternatives to the bond market to preserve value if the bond market collapses, as some predict. So REITs are likely to be a growing source of value to income investors. And as we have long said, REITs also offer diversification, as they are investments that move independently from markets.

On behalf of the team at Global Income Edge, we’re pleased to have served you over the last year, and we will work hard to continue to be your premier investment-research service on income investment opportunities.