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VWEHX: Giving You High Yields Since The ’70s

Summary High-yield bond fund that has shown good returns over the last decade. Junk bonds are in the top end of credit quality. Option to help with reducing risk and volatility in a portfolio. Mutual funds are a great way to improve risk adjusted returns for investors. There are many options when looking for high yield investments and recently I have been looking at high-yield bond funds. Vanguard High-Yield Corporate Fund Investor Shares (MUTF: VWEHX ) holds high rated “junk bonds” and aims for investors who are looking for consistent income. Since inception in 1978 the fund has had an average annual return of 8.48%. With how well the bonds are chosen and a high yield, this fund has the potential to fit into many portfolios. While it may not beat the market in overall return, there is going to be less risk and volatility to worry about. Expense Ratio The expense ratio is .23% for the minimum investment. This is a surprisingly low expense ratio for an actively managed fund seeking high-yield bonds. There is a minimum investment of $3,000 to invest in this mutual fund. The Lipper peer average expense ratio was 1.11% as of 12/31/2014. The management team had a turnover rate of 34.7% the last fiscal year and has performed well compared to similar funds. Yield VWEHX has a distribution yield of 5.58%, which is great for more current income in a portfolio. The combination of a high yield and a low expense ratio make this fund a definite option. While this fund is correlated on a short term basis to stocks, the high yield needs to be taken into consideration. During an extended down period for the market this high yield is going to greatly reduce the overall loss. However, when we are in a bull market a bond fund is not going to see a lot of growth. Here’s a comparison to the S&P: Even though you can definitely see the correlation, there is a massive difference in volatility. Over a long period of time VWEHX has performed very well on a returns basis because of the high yield. Because of how this fund functions, I wouldn’t have it in my portfolio unless I had a good utilization for the yield. Diversification Here’s a graph showing bond sector allocation: Along with 402 holdings, VWEHX has broad diversification. All the different sector and company exposure is a good first step in protecting against risk. Among the 402 holdings, there is a good balance of diversity without investing too much in a few companies. There is only one holding with over 1% and quickly shifts to the tenth being at .80%: On top of being well diversified, the management has shown over decades their process to choose bonds has worked. The fund uses a fundamental process when looking at credit quality. With how the bonds are chosen there is generally a higher credit quality and less volatility than competitors. The average annual returns over the past ten years has been 6.56% and over five years has been 6.33%. This has been a top performing high yield bond fund since its inception and continues to perform. I normally wouldn’t pay attention to one-year periods, but it makes a point of how this fund does during a bump. Over the last year the fund has had an annual return of .91%, which is in the top 10% for funds in this category. VWEHX’s high yield has saved the day again here. An interesting point to look at this fund is the yield and performance while selecting high-quality junk bonds as shown in the following chart: 90% of the holdings are B3 or above. Management has stated that they will never have more than 10% of the holdings below B quality. Over 85% is in the top end of non-investment grade bonds. There has been some speculation as to how management finds bonds, which can be found here . Whatever exact strategy is used, Wellington Management has done a good job choosing investments for this mutual fund. Conclusion VWEHX is broadly diversified and has had a high sustainable current income. VWEHX has higher credit quality bonds compared to the others junk bond funds. Management has used a credit selection process, which has shown a lower return volatility compared to competitors. High-yield bond funds will have a correlation to the market, but the lower risk and high income coming in from a high yield will get rid of massive bumps in volatility. I would want this fund around 5%-10% of my heavily indexed portfolio to help with income and reduce overall volatility.

3 Top-Rated PIMCO Mutual Funds To Strengthen Your Portfolio

Pacific Investment Management Company, LLC (commonly known as PIMCO) is a renowned investment management firm, headquartered in Newport Beach, California. The company was founded in 1971. In 2000, the company was acquired by Allianz Asset Management of America L.P. However, it continues to operate as an autonomous subsidiary of Allianz ( OTCQX:AZSEY ). It boasts more than 2,000 employees working in 13 offices across 12 countries. It manages assets worth $1.52 trillion (as of June 30, 2015). It offers a broad lineup of investment solutions to its clients that encompass the entire gamut of equities, bonds, currencies, real estates, alternative investments and risk management. Below we share with you the 3 top-rated PIMCO mutual funds. Each has earned a Zacks Mutual Fund Rank #1 (Strong Buy) and we expect the fund to outperform its peers in the future. PIMCO High Yield Municipal Bond Fund A (MUTF: PYMAX ) invests a major portion of its assets in debt obligations that are expected to provide income that are free from federal income tax. PYMAX may invest in investment grade municipal bonds and not more than 30% of its assets in “private activity” bonds. The PIMCO High Yield Municipal Bond A fund has returned 5.2% in the last one year. PYMAX has an expense ratio of 0.85% as compared to a category average of 0.97%. PIMCO Mortgage-Backed Securities Fund A (MUTF: PMRAX ) seeks total return. PMRAX invests a large portion of its assets in a diversified portfolio of mortgage-related Fixed Income Instruments. PMRAX may also invest in derivative instruments including options, futures contracts and swap agreements. The PIMCO Mortgage-Backed Securities A fund has returned 1.9% in the last one year. As of June 2015, PMRAX held 550 issues, with 11.28% of its total assets invested in FNMA. PIMCO Global Bond (USD-Hedged) Fund A (MUTF: PAIIX ) invests the majority of its assets in Fixed Income Instruments that are economically linked to a minimum of three nations including the U.S. PAIIX generally invests at least 25% of its assets in Fixed Income Instruments, which are economically tied to non-U.S. countries. PAIIX may also invest in derivative instruments. The PIMCO Global Bond (USD-Hedged) A is a non-diversified fund and has returned 1.5% in the last one year. PAIIX has an expense ratio of 0.90% as compared to a category average of 1.03%. Original Post

Otter Tail Corporation: Reaffirmed Guidance Leading To Next Dividend Bump

Otter Tail Corporation reported 2015 third quarter earnings on November 2, 2015. Guidance for the full year was reaffirmed. Recent events introduce both support and uncertainty for Otter Tail’s near-term future earnings. Otter Tail’s dividend growth history points to another increase in February 2016. Otter Tail Corporation (NASDAQ: OTTR ), a diversified electric utility, started the year a tad slow. In the first quarter, the company lowered its full-year guidance. The second quarter brought an unofficial bump in the full-year projections. On November 2nd, the company reported 2015 third quarter earnings and officially confirmed its unofficial guidance bump. Full-year earnings per share is still expected to be in the middle to upper half of the $1.50 to $1.65 range. In other words, EPS for 2015 is expected to be $1.57 to $1.65. The company’s overall target is for the utility segment to deliver 75% to 85% of total earnings while the manufacturing segment delivers 15% to 25%. Like many utility companies, Otter Tail pays an attractive dividend – $1.23 annually. Its strategy is to allocate the utility segment’s earnings in support of the dividend. Its manufacturing segment’s earnings are intended to cover corporate costs and drive share price appreciation. For the third quarter, the utility segment earned $0.34 per share exceeding the dividend payment of $0.3075. The manufacturing segment earned $0.15 per share exceeding the corporate costs of $0.07. Year-to-date, the utility segment has earned $0.91 per share trailing the year-to-date dividends of $0.9225. The manufacturing segment has earned $0.40 which is $0.24 ahead of corporate costs of $0.16. Third quarter results revealed both support and uncertainty for full-year projections and Otter Tail’s near-term future. In support of its long-term goals, on September 1st, Otter Tail acquired Impulse Manufacturing. Impulse is located in Dawsonville, Georgia. The metal fabricator will join Otter Tail’s BTD Manufacturing segment. The acquisition is expected to be accretive to earnings in 2016. In 2014, Impulse generated $27 million in revenue compared to BTD’s $219.6 million. On August 3rd, the EPA (Environmental Protection Agency) published its final Clean Power Plan. The fully-implemented plan is designed to reduce carbon dioxide in machines from power plants by 30% of 2005 levels. Otter Tail believes the final Section 111(d) rule was a major change from the proposed rule. Its initial analysis showed the impacts to Otter Tail were improved under the final rule as compared to the proposed rule. Compliance begins in 2022 and must be complete before 2030. States must submit plans for approval by September 2016 and must receive approval by September 2018. Otter Tail is working with South Dakota, North Dakota and Minnesota to determine a framework and plan for each state’s compliance. At this point, Otter Tail is encouraged regarding its plant in South Dakota, concerned regarding the required addition of renewable energy in North Dakota and expecting its planned retirement of a plant in Minnesota to aid in compliance. Overall, the company expects the legislation to create increases in the costs of generation for its customers. Regarding renewable energy, the plan establishes eligibility dates: “Incremental emission reduction measures, such as RE and demand-side EE, can be recognized as part of state plans, but only for the emission reductions they provide during a plan performance period. Specifically, this means that measures installed in any year after 2012 are considered eligible measures under this final rule, but only the quantified and verified MWh of electricity generation or electricity savings that they produce in 2022 and future years, may be applied toward adjusting a CO2 emission rate.” In North Dakota, Otter Tail expects the state to have to add a substantial amount of wind power. In 2013, South Dakota was producing more than 25% of its electricity from wind. Minnesota will require 25% of its electricity to be generated from wind by 2025. Finally, Otter Tail’s third quarter information mentions a potential impact to earnings before year-end. “Should the federal government change current tax law before the end of 2015, the corporation’s consolidated earnings guidance could be negatively impacted in the range of $0.02 to $0.04 per share.” Considering there are $0.08 in the range of $1.57 to $1.65, the potential negative impact could be absorbed and Otter Tail would still meet its own projections. The company has earned $1.15 per share in the first nine months of 2015. Therefore, Otter Tail’s fourth quarter must deliver $0.42 to $0.50 in EPS. Since Otter Tail is a “winter-peaking” utility, achieving full-year guidance should not be a problem. The company’s dividend yield is healthier than other diversified utility companies. With full-year guidance reaffirmed, the stability of Otter Tail’s dividend is also presumed. Prior to 2009, the company increased its dividend for 33 consecutive years. In February of both 2014 and 2015, Otter Tail reestablished the tradition. February, 2016 should yield yet another increase.