Three Income Funds That Will Persevere
Income investing, at least the most successful income investing, is a long-term prospect, so it pays to find solid investments that will outperform their peers year in and year out.
My dad held up his hands and shrugged his shoulders. "But what can I do in a yield-starved environment?" he asked.
"Plenty, actually," I told him.
In fact, there are a wide-range of choices available for income-hungry investors who are struggling to overcome the Fed's disastrous zero-interest rate policies. Obviously, though, the suitability varies widely depending on individual liquidity, credit, and yield requirements.
Here are some of the more interesting options I've been exploring lately:
Near-Term Tax Free Fund (NEARX)
From US Global Investors, this fund is billed as an alternative for investors who want safety but are willing to take on a bit more risk.
I like the fact that the fund is a very consistent performer, with more than ten years of positive numbers in the record books. I also appreciate that the fund has been around since December 1990, particularly since I view it as a possible substitute for traditional money market funds or even CDs.
Morningstar gives NEARX four-star ratings overall in the three-, five-, and ten-year categories, while Lipper bestows five stars for preservation, expense and tax efficiency.
The fund's goal is pretty straightforward. It invests in municipal bonds with short-term maturities issued by state and local governments nationwide. Examples include holdings from the City of Chicago, the Commonwealth of Puerto Rico, and the City of San Antonio Texas Water System Revenue.
The strategy is pretty simple. With at least 80% of its net assets invested in investment-grade munis, it's exempt from federal income tax—including my personal "favorite" middle-class eviscerator, the alternative minimum tax.
Maturities are kept to five years or less to avoid the volatility associated with longer-dated issues and the threat of rising interest rates. The average maturity is 3.4 years, while the average duration is slightly lower at 3.06.
30-Day SEC Yield: 1.03%
Expense Ratio: .45%
Note: Don't be unnecessarily put off by the 1.03% yield. Remember, this is a tax-exempt fund. On a tax-equivalent basis, the yield jumps to 1.77% for an individual in the 35% tax bracket. That's actually higher than the yield on ten-year Treasuries as of press time.
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