As 2024 comes to a close, predictions indicate a remarkable year for investors in U.S. stocks, with the S&P 500 potentially posting a year-to-date gain of 28%. This performance has exceeded even the most optimistic forecasts, surpassing an anticipated rise of 15%. Should this upward trend persist, 2024 would go down in history as one of the best years for stock market performance in the last two decades, trailing only slightly behind record years like 2013 and 2019. Notably, this surge is not predominantly driven by technology stocks; the Technology Select Sector SPDR ETF (XLK) has seen a respectable but lesser return of 24.5% year-to-date. This divergence suggests that the market recovery stems from solid underlying fundamentals rather than speculative jumps in the tech sector, implying that the investor sentiment is built on a more sustainable foundation.
Despite the impressive domestic stock market gains, investors holding U.S. stocks may contemplate diversifying their portfolios with international shares, especially in light of historically high discounts and the allure of attractive dividends exceeding 8%. The comparative performance of the benchmark S&P 500 index and the iShares Core MSCI Total International Stock ETF (IXUS) reveals that while U.S. stocks have thrived, international equities have consistently lagged since IXUS’s inception over a decade ago. This persistent gap in performance can be attributed to U.S. companies generally showing higher profitability and, consequently, commanding higher prices in the market. The current analysis suggests that while international stock investing could be perceived as yielding short-term gains, the long-term dynamics indicate careful consideration is required.
One strategic approach for capitalizing on international stocks is through investments in closed-end funds (CEFs), which provide unique opportunities given their tendency to trade at discounts to net asset value (NAV) along with lucrative high dividends averaging around 8%. For instance, the BlackRock Enhanced International Dividend Trust (BGY) exemplifies this strategy, where the discount on the fund has narrowed from 15% to 9%, resulting in a total return of 13.5% since the beginning of the year. The fund’s current yield stands at 9.1%, bolstered by a recently announced dividend increase. This scenario illustrates how investing in discounted CEFs can enhance returns while simultaneously generating substantial income as the market corrects itself, leading to appreciation in fund prices.
While the appeal of international CEFs is clear, the preferred investment for most remains U.S.-based stocks and CEFs, as seen in the performance of the Adams Diversified Equity Fund (ADX). This particular fund has outperformed the S&P 500 with a significant year-to-date return of 30.6%, riding on a portfolio of well-known U.S. blue-chip companies such as Microsoft, JPMorgan Chase, and Visa. ADX trades at an 11.4% discount, and nearly half of its robust return can be attributed to its impressive yield of 8.1%. Managing a fund in a volatile asset class poses challenges, but ADX has maintained a long-standing reputation for providing high payouts to its investors, tracing its origins back to 1929.
Investors are advised to focus on income and sustainability for long-term performance; leveraging high-yielding, deep-discounted CEFs can provide an essential avenue for diversifying portfolios. The evidence suggests a cautious approach when considering investments outside the U.S., which tend to exhibit underperformance over longer periods. Deep discounted positions coupled with high yield potential present opportunities, but it’s crucial to navigate these investments strategically due to inherent market volatility and fluctuating returns. As the investment landscape evolves in 2024, the importance of balancing domestic successes with international diversification will become increasingly relevant.
In conclusion, with the stock market poised for significant gains and a potential banner year for U.S. equities, investors should consider deploying strategies that incorporate both domestic triumphs and international potentials. Closed-end funds represent a bridge for accessing international markets while mitigating volatility and enhancing income streams. The focus on solid dividend yields and defensive positioning will remain essential for creating a resilient investment portfolio in the current landscape. Continued vigilance is warranted as financial markets shift, making it imperative for investors to stay informed and adaptable, ensuring they meet their financial goals through a well-rounded investment strategy.
