NEW YORK (FMD Capital Management) -- Fixed-income investors are in a bind. Bond yields are stingy and bond prices will plummet when rates rise (as they must someday). Thus, income investors are faced with the growing need to diversify their dividend streams away from traditional interest-rate-sensitive asset classes.
If 2013 has taught us anything, it's that central bank policies are set to change. We must adapt our asset allocations to stay ahead of the curve. No longer can your portfolio be dominated by traditional domestic fixed-income or real estate investment trusts that are susceptible to the whims of rising rates. Instead, it's time to look abroad and incorporate other areas of the market that are offering unique value opportunities for your portfolio.
Consider international dividend equity ETFs, which have not had the same huge move as U.S. stocks in 2013. One of the funds on my watch list is the iShares International Select Dividend (IDV) exchange-traded fund. This ETF is focused on approximately 100 dividend-paying stocks in foreign developed countries. It currently has a 30-day SEC yield of 4.55%, which is over 50% higher than its domestic counterpart in the iShares Select Dividend (DVY) ETF.
A quick check of the chart shows that IDV has pulled back more than 5% since its high in October. As long as it can maintain its uptrend above the 200-day moving average, I believe that this fund represents an excellent opportunity for a small portion of your income portfolio.
International stocks tend to be more volatile, which is why I typically prefer smaller allocation sizes when entering new positions. In addition, it always makes sense to incorporate a trailing stop loss to guard against downside risk in the event that these stocks stumble.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV