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The
Unique Fund that can Protect Your Portfolio from Rising
Inflation |
Published:
March 3,
2007
The Western Asset/Claymore Inflation-Linked Securities
Fund (NYSE: WIA, $12.28) is built to weather stormy markets. Whether the
tailwinds are credit writedowns, inflation fears, a slumping dollar,
or interest rate surprises, this fund has it covered.
As of October 31, 2007, over 80% of its $390 million portfolio was
invested in U.S. Treasury inflation-protected securities (TIPS) with
the highest "AAA" credit rating. TIPS pay a fixed rate of interest,
but the government adjusts their principal value each year by the
rate of consumer inflation. The end result is a security that
increases in value as inflation rises.
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The balance of the portfolio was invested in government-backed
mortgage securities and higher-yielding corporate bonds like Ford's
(NYSE: F) 7.45% note. The portfolio wasn't leveraged, but hedging strategies
were in place to limit risk. The fund may also invest up to 40% of
its assets in non-U.S. dollar inflation-linked securities to hedge
against the falling dollar -- a strategy that has worked well in recent
months.
After hiking the payment +10% in October, WIA pays a monthly
dividend of $0.0575 a share, which equates to $0.69 annually.
Including the year-end capital gains payout of $0.0467, the total
annual payout of $0.7367 gives a yield of 6.0%. An annual management fee of 0.79% of the
fund's average weekly asset value takes a small bite out of
distributable income.
The distribution is taxable as ordinary income, but the portion
coming from U.S. TIPS -- over 70% in 2006 -- is exempt from state
income tax in many states. A dividend reinvestment plan is available
and potential investors can contact the fund at 1-866-486-2228 for
more information.
WIA raked in returns of over +13% in the past year, placing it at
the top of the leader boards for its category. With year-to-date
returns of close to +5.5%, WIA is on
track for a successful 2008. Also, the fund has traded at a double-digit
discount to its portfolio value since September 2005, and despite the
recent price run-up, WIA is still attractively priced at a
-12% discount.
Action To Take ---> With its
defensive portfolio of low-risk inflation-linked Treasuries, this
fund is well-suited for conservative investors looking to weather a market downturn.
Good investing!
Carla Pasternak
Editor
High-Yield Investing
http://www.StreetAuthority.com
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Income Security
of the Month
Our "Income Security of the Month" for May 2008 invests in
a fast-growing overseas market that doesn't get much exposure in the
mainstream financial press. And although it typically makes enormous
annual dividend payments -- it has paid an average dividend of 24.5%
per year over the past five years -- this fund is perhaps most
appealing for its total return potential. Specifically, the fund has
delivered total returns of +297.3% since 2003, and
it ranks in the top 10% of its category over the past decade.
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