Bill DeSio pulled off a neat trick during the crash: As his portfolio sank, he shrugged off his anxiety and bought blue-chip stocks on the cheap, putting himself in position to make a killing. Today the 63-year-old insurance executive from Springfield, Pa., is anxious about the market's recent dips and ready to lock in those gains.
"I've been working all my life, and I don't want to lose everything," he says. But DeSio is not simply fleeing into savings accounts or certificates of deposit. Among his more intriguing buys are investments that generate streams of cash, including hybrid "convertible" bond funds that offer appealing dividends.
His mission: Get significant income no matter what stocks do.
These investors seek instruments that can keep their portfolios growing. They're exploring sophisticated options typically shunned by mom-and-pop investors. Global real-estate investment trusts have seen their cash inflows jump by 50% this year, for example, and emerging-market bond funds recently had their biggest-ever monthly inflow of cash, according to fund research company EPFR Global.
Such assets aren't risk-free, of course, but consumers and planners are viewing them as sources of cash and potential counterweights to stocks.
To be sure, venturing into unfamiliar investment territory presents savers with a steep learning curve. Virtually no adviser suggests that clients go all-in on assets such as pipeline partnerships or Asian dividend stocks; such options might complement but not entirely replace meat-and-potatoes stock investments.
But many pros are exploring tactics that provide shelter from stock market volatility. Many are identifying assets that pay steady income. Some emphasize foreign markets as a cushion against another downturn in the U.S. economy. David Darst, the chief investment strategist for Morgan Stanley Smith Barney, sees them as "sleep-at-night investments."
Here's a closer look at some of these options.
MLPs and REITS: Tapping properties and pipelines
Zeke Ashton, a co-manager of the Tilson Dividend (TILDX) fund, recently delivered for his shareholders with the help of an alphabet soup of investments. Ashton says he's reaped good results in part by buying master limited partnerships, or MLPs, and real-estate investment trusts, or REITs, including one REIT, Annaly Capital Management (NLY, news, msgs), that has a dividend yield of more than 15%.That isn't a misprint. REITs and MLPs are required by law to return most of their taxable income to investors. So pros increasingly see them as ways to collect a substantial return even when markets flatten or fall.
Yields as high as Annaly's are rare. Its dividend, in part, is designed to offset investor concerns about the share price of the company, which invests in and manages mortgage-backed securities. But dividends in the range of 5% to 7% are common. Most REITs and MLPs trade like stocks, and they've been hot lately. The Dow Jones Equity All REIT Index ($REI) rose 10% in the first quarter, more than doubling the return of the Standard & Poor's 500 Index ($INX). And the Alerian MLP Index ($AMZ.X), created to provide a comprehensive benchmark for investors to track the performance of the energy MLP sector, is up 66% since 2008.
Most MLPs invest in energy assets such as pipelines, which generate income by transporting and storing oil and gas and are somewhat insulated from fluctuating energy prices. Mark Freeman, the manager of the WHG Income Opportunity Fund (WWIAX), likes Enterprise Products Partners (EPD, news, msgs) and Boardwalk Pipeline Partners (BWP, news, msgs), each of which pay investors around 7%.
Real-estate investment trusts offer investors the opportunity to play the U.S. and international real-estate markets. The T. Rowe Price Real Estate (TRREX) fund has been a top performer in U.S. real estate over the past decade, avoiding the most volatile assets. One overseas instrument to watch is the SPDR Dow Jones International Real Estate (RWX) exchange-traded fund, which holds stakes in properties in Australia, Japan, the United Kingdom and Hong Kong.
Continued: Finding bonds outside the bubble
