Profit from the coming income-investing panic of 2015

By Nicholas A. Vardy, CFA

Continued from page 1

Page 1 Page 2

REM yields an impressive 14.52%, pays dividends monthly and charges a fee of 0.48% annually.

REM generated a total return of 16.77% in 2014, and boasts an annualized return of 10.6% over the past three years.

2. UBS E-TRACS 2x Leveraged Long Wells Fargo Business Development Company ETN — 17.45% Yield

The UBS E-TRACS 2x Leveraged Long Wells Fargo Business Development Company ETN tracks the Wells Fargo Business Development Company index. The index mirrors the performance of all 26 Business Development Companies (BDCs) that are listed on the New York Stock Exchange or Nasdaq.

The BDC business model is to lend to small and mid-sized companies at high-yield equivalent rates while also at times taking equity stakes in them. Think of BDCs as "private equity light."

Based on a market-cap-weighted index, this ETN is highly concentrated with its top four holdings — American Capital Ltd. , Ares Capital Corp. /zigman2/quotes/204858389/composite ARCC +1.15% , Prospect Capital Corp /zigman2/quotes/207164072/composite PSEC +0.78% and Apollo Investment Corp /zigman2/quotes/205631771/composite AINV +1.31% accounting for about 38% of its investments.

BDCL adds a twist to the BDC income theme. By leveraging your investment by two times, for every dollar of BDC stock it buys, BDCL borrows another dollar. With most BDCs paying relatively high dividends of 8%-9%, BDCL yields a whopping about twice that — making it one of the highest-yielding instruments you can find.

BDCL currently yields 17.45% and pays out dividends quarterly. It charges an annual fee of 0.85%.

BDCL generated a not-so-great total return of -16.04% in 2014. But that followed gains of 74.28% in 2012 and 32.6% in 2013, for a three-year average return of 19.09%.

3 . iShares Global Telecommunications ETF — 12.32% Yield

Launched in Nov 2001, the iShares Global Telecommunications ETF /zigman2/quotes/205391596/composite IXP -0.12% tracks the price and yield performance of the S&P Global 1200 Telecommunications Sector Index. The fund holds 46 stocks in its portfolio with the top-10 holdings making up close to 70% of the portfolio.

The top stocks in the ETF include familiar names like Verizon Communications Inc. /zigman2/quotes/204980236/composite VZ +1.78% , AT&T Inc. /zigman2/quotes/203165245/composite T +2.22% and Vodafone Group Plc /zigman2/quotes/202862751/composite VOD +2.67% , each with asset a weighting of 16.10%, 14.37% and 7.49%, respectively.

IXP boasts a trailing yield of 12.32% and pays out dividends quarterly.

The fund charges an expense ratio of 48 basis points a year.

As the most traditional of high-dividend plays among this group, IXP's current high yield comes with a significant asterisk.A big chunk of IXP's eye-popping headline yield stems not from dividends, but from a massive $6.37 per ETF pay out last June, which likely came from distribution of capital gains. Such a large distribution is unlikely to be repeated in the coming year. IXP's SEC yield is a much more modest 3.29%.

IXP generated a total return of -1.38% in 2014. Its three-year average return is 11.60%.

Disclsoure: Vardy owns IXP, BDCL and REM.

/zigman2/quotes/204858389/composite