Unyielding yield investing

Dear rss free blog,

PIMCO
has hired Neel Kashkari, who until May had headed
the U.S. Treasury’s TARP bank-rescue program after making his
career at Goldman Sachs, to help with new investment initiatives with
actively managed equity funds. Until now, PIMCO has been a bond
house. It also lured in two former analysts from Franklin
Resources,
Anne Gudefin and Charles Lahr, to be its global equity portfolio
managers, Bloomberg
News
reported.

Pimco
is expanding beyond fixed income under Mohamed El-Erian, formerly
with Harvard Endowment, who joined as CEO last year to lead a push
into global non-bond assets. El-Erian and his co-chief investment
officer Bill Gross wrote to clients yesterday that “these steps are
part of Pimco’s evolution over the last decade that has already
taken us beyond being solely focused on core fixed income.” (A copy
of the letter was obtained by Bloomberg.)

Mr.
Kashkari is an example of revolving doors on Wall Street, using his
TARP equity experience on behalf of US taxpayers to become an
overpaid fund manager in San Diego. But the worst of this it that
Mohamed El-Erian, formerly a bond specialist, has landed on his feet
back at Pimco. This after he placed Harvard Endowment in
under-researched illiquid hedge funds and alternative investments
which cost the university 30% of its money.

Pimco
clients will pay Messrs. Kashkari and El-Erian and Gross handsome
fees for their tyro ventures into equity investing.

It
is not easy to invest for yield. Here is a note from Dow
Jones Indexes last week about its annual review of the DJ Select
Dividend Indexes for Global; Europe, Pacific, Asia and Canada;
Asia/Pacific; Canada; Japan; and U.S. plus its quarterly review of
the DJ Australia Select Dividend 30; DJ Asia Select Dividend 30; DJ
Hong Kong Select Dividend 30; and DJ Country Titans indexes.

Several
dozen stocks were removed from its lists and replaced by others.
Changes
will become effective after markets close on Friday, December 18.

Here
is a sampling of the changes for the Global Select Dividend Index.
Nine stocks are out: Sandvik
AB (Sweden, Industrial
Goods & Services, SAND.SK); SSAB
AB Series A (Sweden,
Basic Resources, SSAB-A-SK); SembCorp
Industries Ltd. (Singapore,
Industrial Goods & Services, U96.SG); Rexam
plc (Britain, Industrial
Goods & Services, REX.LN): General
Electric Co. (USA,
Industrial Goods & Services, GE), BT
Group plc (Britain,
Telco, BT.A.LN); CSR Ltd.
(Australia, Basic Resources, CSR.AU); Dow
Chemical (USA,
Chemicals, DOW); and UOL
Group Ltd. (Singapore,
Real Estate, U14.SG).

Their
replacements: StarHub Ltd. (Singapore, Telco, CC3.SG);
FirstEnergy Corp. (USA, Ute, FE); Edison SpA. (Italy,
Ute, EDN.MI); Eisai Co. (Japan, Health Care, 4523.TO); Emera
Inc. (Canada, Ute, EMA.T); Ono Pharma (Japan, Health Care,
4528.OK); Bouygues S.A. (France, Construction & Materials,
EN.FR); TransCanada Corp. (Canada, Oil & Gas, TRP.T); and
Schneider Electric S.A. (France, Industrial Goods &
Services, SU.FR).

There
were similar fiddles with the lists for regions and countries. The
effect is to remove dud companies or ones whose payout has been cut and replace them with ones who pay higher divvies. It all is based on a list.

After
the release went out on Dec. 3, Dow Jones had to issue corrections
because of errors. In the interim until the new index goes live Dec.
21, Exchange-Traded Funds and other index trackers have to sell the
stocks removed from the indexes and buy the ones added.

This
costs investors in these ETFs serious money for transaction costs and taxes.

In return, according to
current data, you get a marginal increase in the rate of dividend,
under 50 basis points (a half percent.) But note that if you already
hold the index position being switched, your rate of return is based
on what was paid for your stock, not what the payout ratio is now.

So
the trading may cost you capital gains tax, and not enhance your yield.

Letting
inexperienced Pimco invest your money in equities for yield will be
costly. And letting a manager tracking Dow Jones indexes get you
yield investment positions that have to be bought and sold for no
real reason up to 4 times a year is also costly.

We
have a solution. Your editor is creating a global yield portfolio
which investors can track and copy with as little as $5000. To find
out more, visit http://cw.com/models/profile/vivian-lewis.
You can open a covestor account at https://cv.com/open-account/start

The
program is slated to go live in the course of the week. I remain
dubious because there have been so many delays, but since I am
leaving for my Xmas break on the 18^th,
there probably will be action on this before then. This blog is late
because of more bureaucratic hassles by the on-line discount
brokerage handling the deal, Interactive Brokers, which seems to be
more interested in charging me for price data and earning meager
returns on my cash they have sat on for over a month than in picking
up accounts tracking my picks.

My
Xmas-New Year break will take me to Brazil to sail down the Amazon
from Manaus to Santarem, and then to Devil’s Island and St. Barts
before heading homeward via St. Thomas and Ft. Lauderdale. We will
try to keep you updated between me hitting internet cafes (boat ship
to shore is too costly for our budget) and Frida Ghitis holding the
fort. But in the festive period there will only be 3 newsletters per
week.

Focused
on yield for the Covestor program, I am adding another accessible
global yield share to the model portfolio. It will also go into the
program over the next few days. More for paid subscribers follows.

Even if you sign up for the yield portfolio tracker, which is my idea of a public service to people who have been hurt by market losses and need to restore their retirement accounts, you still want to know about the fun stuff. That means stocks bought for price appreciation, and the speculations we cover. So you still should be subscribing to the full version of Global Investing.