January 12, 2013 Pitbull's World

Risk/Reward Vol. 152

THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.

"Ridin' high/Winter nights/Warm and dry
You've earned your space, buddy"---lyrics from "Boomtown Blues" by Bob Seger

"Say O.P.P.(O-P-P), I like to say it with pride
Now when you do it, do it well and make sure it counts
You're now down with a discount."---lyrics from "O.P.P." sung by Naughty by Nature

"There's not a place/That your love don't affect me, baby
So I don't ever change/I crossed the globe when I'm with you, baby."---lyrics from "International Love" sung by Pitbull

With the tax rate crisis over and with some time (albeit short) before sequestration and debt ceiling negotiations again dominate the news, the stock market has been "ridin' high"so far in 2013, "warm and dry" as it closes each "winter night". The Dow Jones Industrial Average (DJIA) is up 2.8%, and the S&P 500 (S&P) is up 3% year to date. Let's hope that companies have "earned this space", an answer we will soon learn as the earnings (and more importantly the guidance) season begins for real next week. Alcoa kicked off fourth quarter earnings reports this week with better than expected numbers. That said, expectations for most companies are modest. Thus, any earnings or guidance disappointments will reverberate more than any news to the upside. I don't expect many surprises.

Although my portfolio of closed end and exchange traded funds is focused on achieving an average annualized dividend payment of 8.5% (not capital appreciation) and although I missed a day or two of this year's rise, I, too, am up 2.25% Thus , I can "say with pride" that "I did well," having matched "O.P.P." (other people's portfolios), even those in index funds. My results reflect the fact that I was able to buy my positions at a greater than normal "discount" to net asset value, thanks to Fiscal Cliff crisis overhang.

This week I discuss my exposure to "International" investments.

My most direct international play is DJX, an exchange traded fund that mirrors the performance of 800 dividend paying stocks listed on the Tokyo Stock Exchange. Shinzo Abe, the recently elected Japanese prime minister, is spearheading an effort to spur economic growth in Japan. This effort includes a stimulus package and yen devaluation. Abe wants Japanese products to once again "cross the globe" so that there is "not a place" on earth that Japan cannot compete. Japanese stocks should do well in such an environment. I chose DJX over the more popular NKY (which mirrors the performance of the Nikkei 225) because DJX is hedged to perform better if the yen falls in comparison to the dollar.

I also achieve "International" exposure via ESD, a closed end fund with 75% of its assets invested in the sovereign debt of South America and Eastern Europe (primarily Mexico, Brazil and Russia). Although none of these is "a place" where I have invested previously, the track record of ESD's sponsor, Western Assets, in these regions has been stellar over the past several years which is why Morningstar gives ESD a Silver rating. "I don't want" this past performance to "ever change." As of today, ESD is no longer trading at a discount to its net asset value, but it still yields a 6.5% dividend. I achieve exposure to other countries in a similar fashion via my positon in AWD.

I achieve exposure to European dividend paying stocks via IGD which, despite a rebound in European stocks last year, continues to trade at significant discount to net asset value and pays an11+% dividend while maintaining a Bronze rating from Morningstar.

Lastly, I achieve "International Love" via BCF, a closed end fund investing in international mining and natural resource companies such as BHP, Rio Tinto, Caterpillar, Vale, etc. If the Chinese economy quickens, this fund should do very well. It currently trades at a healthy discount to net asset value and pays an 8.5% dividend.

I intend to allocate more funds to international exposure. Any suggestions would be appreciated.

The New Year is off to a good start. Let's hope the earnings season does not disappoint. In the words of that force of nature, Pitbull, "Que no pare la fiesta, Don't stop the party," Dah-ling!