Investors often overlook the potential of international stocks, which can significantly contribute to income streams and portfolio safety. Specifically, high-yield closed-end funds (CEFs) present a unique opportunity for those looking to capitalize on both U.S. and international markets, allowing for strategic “timing” moves between them. By rebalancing investments between U.S. and overseas CEFs at opportune moments, investors can target yields as high as 9.2%. The current focus is on China, which is experiencing a notable shift that may set the stage for substantial returns in the international market.
Recently, China made headlines with the announcement of a new stimulus package aimed at supporting its economy. While specific details remain unclear, the intent mirrors previous quantitative easing measures seen in the U.S. during the 2010s and 2020, periods that drove significant gains for American investors. For example, U.S. stocks gained an average of 13% annually post-medium stimulus moves. Given that Chinese stocks have seen a nearly 50% decline since their 2021 high, this could present a timely entry point for contrarian investors anticipating a market rebound.
The China Fund (CHN) exemplifies an investment vehicle worth considering, particularly as it is currently trading at a 16.3% discount to its net asset value (NAV). While this discount indicates potential value, one must remain cautious; previous Chinese stimulus efforts have produced mixed results. In 2016, a governmental attempt to support the economy temporarily boosted the market by 21.7%, but the growth has since stagnated, averaging only 3.5% annually. Therefore, while CHN’s management has outperformed the index, its modest gains since then suggest that relying solely on the Chinese market for returns may not yield the desired benefits.
In light of the volatile nature of Chinese stocks, diversifying into more stable and established international funds may provide a better strategy for income investors. The BlackRock Enhanced International Dividend Trust (BGY) has shown a positive performance trajectory, increasing an annualized 7.4% over the last five years. Moreover, BGY recently raised its monthly dividend, offering a robust 9.2% yield. This emphasizes the potential for a sustainable income stream while minimizing risk through broader international exposure.
By diversifying investments between BGY and U.S.-based funds like the Liberty All-Star Equity Fund (USA), investors can further maximize their income potential. For instance, when the value of U.S. assets declines, income from BGY can be reinvested into USA. Conversely, when international stocks experience downturns, USA’s high dividend can fund investments in international markets. This strategy promotes a resilient investment approach, allowing investors to capitalize on diverse market conditions while building a substantial income stream without the volatility associated with traditional equity investments.
In conclusion, incorporating international stocks, particularly through high-yield CEFs, offers a creative avenue for income generation and risk mitigation. The recent developments in China highlight potential investment opportunities, although caution is warranted given historical performance challenges. A balanced approach, tapping both international and U.S. markets, will enable investors to achieve a resilient and diversified portfolio, paving the way for a sustainable income strategy in an increasingly complex global investment landscape.
