More Reward, Less Risk With This Global Opportunity
Seeking stocks that others ignore, shun, or simply forget gives individual investors like you an edge over the professionals. Getting in before Wall Street discovers them -- or rediscovers them -- means you can stake a claim before they start taking off.
Here we check out companies with minimal analyst coverage at best, and then we pair our list with the opinions of the Motley Fool CAPS community. A stock that garners CAPS' top ratings but hasn't yet caught analysts' attention could be your next home run investment.
On the surface, closed-end fund Templeton Global Income (NYS: GIM) looks like it could be that one. Wall Street doesn't follow funds the way it does stocks, so you won't be getting any analysis on them, and that introduces a level of risk for investors who may not be familiar with how such funds work. And Templeton is also flying under the radar of the 180,000-member-driven investment community at CAPS, though 92% of the 50 members weighing in on it see it beating the Street. Let's see whether that's enough to give you a head start.
Templeton Global Income Snapshot
|Market Cap||$1.3 billion|
|Revenues, TTM||$72.1 million|
|1-Year Stock Return||9.5%|
|Return on Investment||6.1%|
|Estimated 5-Year EPS Growth||N/A|
|Dividend and Yield||$0.35/$4.4%|
|CAPS Rating (out of 5)||****|
Source: FinViz.com. N/A = not applicable.
But remember: Without much analyst support, you'll have to do more digging on your own to see whether it deserves a spot in your portfolio, so don't just buy or sell it based solely on its appearance here.
Hiding in plain sight
If you're unfamiliar with closed-end funds, think of them as ETFs with a limited number of shares available for trading. A closed-end fund invests in a diversified basket of stocks that give you exposure to a particular sector or area of interest, like ETFs, but the finite share count means investor demand for the fund has almost as large a role in determining its price as do the underlying shares of stock. Popular closed-end funds can trade at big premiums to their net asset value, while those that are out of favor can trade at substantial discounts.
Templeton has long been a respected name in international investing and today is run as part of Franklin Templeton Investments that offers over 200 open-end funds and seven closed-end funds, with the international funds run under the Templeton brand. Global Income invests primarily in foreign government bonds, primarily those of South Korea, Poland, Australia, and Brazil.
In an artificially low interest-rate environment that the Federal Reserve is imposing, income-oriented investors need to look beyond the traditionally safe borders of the U.S. if they're interested in earning any kind of yield. While debt issues from Germany or France might offer similar low-rate returns as U.S. Treasuries, emerging markets such as those Global Income invests with provide better rates but without so much risk as to jeopardize principal. The Templeton fund trades at just 2.6% of its net asset value.
Oftentimes the riskier the holdings, the greater the spread between the value of the underlying assets and the price at which it trades. For example, Bill Gross's PIMCO High Income (NYS: PHK) , which invests in high-yield (e.g., "junk") bonds, particularly those of financials, trades at a 68% to its NAV. Morningstar says the risks are even greater for capital loss because of its volatility. Another Gross fund, PIMCO Corporate & Income Opportunity (NYS: PTY) , though also carrying a bit of risk, trades at a somewhat more earthly 17% premium.
Investors who solely chase yield already add risk to their portfolio, but even those funds that trade close to their NAV are not immune. Global Income had to cut its monthly distribution from $0.45 to $0.35 this month as the global low-interest rate environment took its toll. Income-seeking investors know well this trend, as REITs like Annaly Capital Management (NYS: NLY) and Chimera Investment (NYS: CIM) cut their dividends, sometimes several times. Even some master limited partnerships like Inergy have been forced to reduce their payouts.
Global markets have always been a good addition to a diversified portfolio, and while bonds are usually given short shrift by most investors, Templeton Global could be a way to add an international flair without incurring excessive amounts of risk.
I'm confident Templeton Global Income will continue to prove itself, so I'm rating it to outperform the broad indexes on CAPS, but let me know in the comments box below if you see a reason to think the closed-end fund will find itself in a position where it needs to slice its own payout again.
Swing for the fences
If you're still interested in higher yields and Annaly Capital has attracted your eye, learn more about the opportunities and risks in a special report from Motley Fool analyst Ilan Moscovitz. He breaks down the situation at Annaly, including "the three areas that you MUST watch." Click here to find out more about this report.
The article More Reward, Less Risk With This Global Opportunity originally appeared on Fool.com.Fool contributorRich Dupreyholds no position in any company mentioned. Check out hisholdings and a short bio. The Motley Fool owns shares of Annaly Capital Management.Motley Fool newsletter serviceshave recommended buying shares of Annaly Capital Management. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days. The Motley Fool has adisclosure policy.
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