As I noted in our special alert after the market decline, my advice is to not panic and sell out of fear. The holdings we have selected for our three portfolios are solid businesses in industries where they have competitive advantages and pricing power. Collecting their high dividends should help calm nervous investors’ jitters until the various markets sort themselves out.

We advise investors to sit tight until we learn whether the Federal Reserve raises rates this month, and we will hold off on making any new market forecasts or adding to the portfolio until we get a better reading on the U.S. economy, as some preliminary analysis suggests that the U.S. economy may be slowing.

To blow our own horn for a second: We called the recent market decline and trimmed back our portfolio accordingly, and a year ago we called the oil price collapse (see box on page 2).

In early September the Institute for Supply Management (ISM) reported its national factory activity index fell from 52.7 in July to 51.1 last month, the lowest reading since May 2013. A reading above 50 indicates expansion in the manufacturing sector.

The ISM’s new orders sub index fell 4.8 percentage points to 51.7, also the lowest level since May 2013. The employment index also slipped to 51.2 last month from a reading of 52.7 in July. Despite what you read about the falling unemployment rate, this weak employment reading suggests a moderation in factory payroll gains in August.

Ten out of 18 manufacturing industries, including machinery and furniture, reported growth last month. Six industries, including apparel, primary metals, and computer and electronic products, said activity had contracted, according to the report.

In the last few weeks, in our e-letter, Income Without Borders, we conducted a review to discern if there were undervalued opportunities by screening for companies whose price earnings ratios (P/E) had fallen close to historical P/E industry averages. Then looked to see if they were undervalued against our proprietary dividend discount model. 

While our own GIE portfolio holdings still registered value on this analysis, we found that few buying opportunities exist now, as many stocks continue to be overvalued even after the decline.  These results have fed our thesis that further declines in the market are likely.

Nevertheless, after a full market review, we continue to believe in our Buy American theme and believe the top subsector income investors should continue watching is healthcare as an area that has long-term income potential.

My colleague Ben Shepherd goes deeper into the healthcare sector on page 3, putting a spotlight on new drug trials and other strategic developments.

We continue to believe that the sheer growth in the world’s population will drive earnings for years to come at the most competitive drug companies, which will bolster dividends.

The Global View

Given the global retrenchments and reversals in markets, we strongly believe the global view that we provide with Global Income Edge will continue to give investors the edge in investing, in identifying new opportunities, and, as we have proved, alerting investors to threats to their portfolio.

That’s why in the coming months we will be expanding our coverage universe to include more country and regional analysis with a focus on growth to complement our income focus.

For example, even as markets are in disarray in Asia, where droves of investors have abandoned their investments, we still believe watching Asia closely will be key to helping us identify the next super growth trends as the region is still a major player in the world economy.

In sum, we’re clearly seeing a fundamental change in market dynamics where value will be found in the future, and thus we will be adjusting our strategy to reflect this new macro environment.

And, as always, we’ll only settle for the best income and growth opportunities that the world has to offer.

After the Correction:  The Edge Emerges

Global Income Edge predicted the market correction because we take a macro view.

In the wake of the biggest market correction since 2011 in August, many investors have asked why Global Income Edge was in the minority of publications that predicted the recent stock market fall and the collapse in oil prices last year.   

The answer is that the world’s financial markets and economies are more interconnected than ever, and taking a macro view of trends, and using detailed financial models, gave us a richer understanding of how various markets around the world interact.

From the beginning our Global Income Edge strategy has fueled our ability to find great yields for subscribers and avoid many pitfalls. In this crazy world of central bank stimulus, rock bottom interest rates, mixed growth and market volatility, we’ve tried to help income investors negotiate these shoals.

The Global Income Edge’s Conservative Portfolio continues to deliver almost a 5% annualized dividend yield, and on a total return basis has held steady with the S&P 500 stock market index.

On a risk-adjusted basis, GIE investors have been better served than the index because our holdings are in more solid businesses such as telecom, utilities, consumer defensive and healthcare that can better withstand the present global deflationary trends. 

Our REIT portfolio continues to deliver a 7.4% annualized dividend yield. On a total return basis the portfolio is down 5%, but we believe this sector has been oversold and will likely gain value as investors flee high yield bonds to lock in gains when the Fed raises rates.

Moreover, GIE’s Aggressive Portfolio was always going to underperform during a market correction, given its focus on growth. But our major repositioning of this portfolio before the market correction avoided double-digit losses. In fact, The Aggressive Portfolio is down just a few percentage points from a total return basis. The portfolio continues to deliver an annualized dividend yield of 7.4%

As we have noted in the past, we believe the Aggressive Portfolio will recover with the global recovery. But the global recovery is likely to happen in fits and starts, a fact that has been reinforced with the latest reversals in markets around the world.