2019-05-01+Kiplingers+Personal+Finance

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was the fear of drastic Federal Re-

serve credit tightening. Smart buyers

pounced on the deeply oversold shares

even before the central bank called

a time-out on its rate-hiking cycle.

Savvy investors will take advantage

if the market pulls this trick again.

You can invest in this sphere indi-

rectly through the likes of MILLER/

HOWARD HIGH INCOME EQUITY (HIE, $11), a

closed-end fund, or exchange-traded

fund YIELDSHARES HIGH INCOME (YYY, $18).

These funds also include such yield-

oriented standards as bank-loan funds

and short-term junk-bond funds.

The investments listed here, whether

funds or individual securities, make

more sense as satellites rather than

core fixed-income holdings. And

I will not argue with those who

doubt we’ll get another double-digit-

percentage quarterly gain on top

of the first-quarter bounce. “It does

feel to us that the rally is run-

ning out of steam,” says John

Sheehan, a portfolio manager

with Osterweis Capital Man-

agement, an adept player in

high-yielding investments.

But he’s absolutely not expect-

ing another nasty sell-off.

Buying a

REIT or fi-

nance firm

that may zig-

zag in price

while steadily

and briskly

boosting its

well-covered

dividend isn’t

playing the lot-

tery. It’s just the

opposite. ■

INCOME INVESTING Jeffrey R. Kosnett

Rewards That Are Worth the Risk

A

fter getting slammed in the final

weeks of 2018, many high-yield-

ing investments are again rock-

ing and rolling. The tent is large and

includes the debt or stock offerings

of everything from oil-and-gas part-

nerships to real estate investment

trusts that specialize in mortgages or

development to companies that pro-

vide financing for other businesses.

Many of these investments have re-

turned more than 10% so far in 2019.

That reinforces my doctrine: It’s worth

striving for extra yield, even in a “risk-

ier” asset, provided you get paid in full

and on time, which is the usual result

absent a recession or a credit crisis.

The strategy is not for everyone.

You may be gloomy about the U.S.

economy’s prospects, or you may be-

lieve that inf lation and interest rates

will soar. Maybe you’re keeping nearly

100% of your savings in cash, short-

term notes and bank deposits because

you don’t need the extra in-

come and don’t want the risk of

investing in something more

aggressive. Or perhaps you’re

safeguarding the money for a

particular purpose.

But if none of that applies to

you, don’t blanch just because a

high-payout holding gets

caught in a temporary market

tumble. Unless a specific enter-

prise is mismanaged—or it runs chron-

ically negative cash f lows and has to

pay through the nose to borrow at all—

there will likely be a recovery, and

your rewards over time will eclipse

the occasional dips and dives.

I say this because a bunch of my

favorite long-term-yield exemplars got

hit hard last year—and my counter-

reaction (and published advice) was

to be fearless. Long-term financial

investments are not trading vehicles.

Such proven operations as BROOK-

FIELD INFRASTRUCTURE PARTNERS (S Y MB O L

BIP, $41, YIELD 4.8%), COMPASS DIVERSIFIED

HOLDINGS (CODI, $16, 9.0%), HANNON ARM-

STRONG SUSTAINABLE INFRASTRUCTURE CAP-

ITAL (HASI, $25, 5.3%), LADDER CAPITAL (LADR,

$17, 8.1%) and NEXPOINT STRATEGIC OPPOR-

TUNITIES FUND (NHF, $22, 10.9%) are disci-

plined, expertly run companies with

sound portfolios of loans and proper-

ties. They cover distributions with

regular cash f low, they don’t speculate

in wacky stuff, they don’t have man-

agement shakeups, and they keep

much of what they buy or finance on

their own balance sheets (rather than

f lip and strip them to pay grandiose

distributions).

Who’s afraid of the Fed? Every one of

the above-named investments tanked

near the end of 2018, some by 20%

or more. But each has now re-

covered because nothing

happened to

discredit its

business

model or

threaten

its divi-

dends.

The

most

plausible

reason for the

market tumble

JEFF KOSNETT IS EDITOR OF

KIPLINGER’S INVESTING FOR

INCOME. CONTACT HIM AT

[email protected].

IT’S WORTH STRIVING

FOR EXTRA YIELD, EVEN

IN A “RISKIER” ASSET,

PROVIDED YOU GET PAID

IN FULL AND ON TIME.

KIPLINGER’S PERSONAL FINANCE 61

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