I consider myself a fairly DIY person. I’ve climbed into the attic to wire my security cameras, I’ve handled oil changes for my vehicle, and I've even grown my own food. There’s deep satisfaction in relying on your own skills and resourcefulness to get things done.
However, there are times when it makes sense to call in a professional. While I might tackle smaller projects myself, I wouldn’t attempt to rewire my entire house; I’d trust a certified electrician for that. Some tasks simply require expertise that goes beyond what I can do on my own.
The same is true with investing. While I enjoy making selections and managing my portfolio, I recognize the value of leveraging professional expertise. That’s why I use Closed-End Funds (CEFs) and Exchange-Traded Funds (ETFs) for my income needs. These professionally managed funds let me benefit from the skills of experienced fund managers, helping me build a steady, income-focused portfolio.
Let’s take a closer look at two such funds that offer reliable income and strong future potential.
Pick 1: HQH – Yield 13.3%
Healthcare stocks have tanked in the weeks following the election, especially when it was announced that President-elect Trump is nominating Robert F. Kennedy Jr. as the Health & Human Services director.
The question we are asking is whether this change will suddenly cause Americans to stop going to the hospital and stop buying medications because of who is nominated for a cabinet position. This is a completely irrational market reaction, and we are capitalizing on the dip in the sector amidst strong fundamentals.
abrdn Healthcare Investors (HQH) is a CEF that has existed since the Raegan administration. Having been through multiple Republican and Democratic administrations, HQH has traversed major legislative changes in the healthcare sector. The Affordable Care Act stands as one of the most significant pieces of legislation since Medicare/Medicaid in 1965.
HQH recently announced a $0.62/share quarterly distribution, the largest it has paid since 2015. We note that HQH's distribution is variable, based on NAV (Net Asset Value). HQH pays 3% of NAV each quarter, so as NAV goes up or down, the distribution will go up and down with it.
HQH is exposed to a wide variety of biotech companies that are developing drugs and treatments for a wide range of ailments and conditions. Americans are aging, and that is a huge positive long-term catalyst for the healthcare sector.
So, when the market sells off, we are happy to add more shares. Let the proven talent of HQH manage our investment in the sector, and benefit from the long-term demographic tailwinds – collecting our income all along the way.
Pick 2: AWP – Yield 11.1%
REITs primarily derive income from domestic real estate operations, such as rent from properties, making them more insulated from international trade tensions, which is one of the concerns in the post-election economy.
REITs entered 2024 as a highly discounted and ignored asset class due to elevated interest rates. However, public REITs had healthy balance sheets, and the retail sector, in particular, exhibited strong economic relevance in consumer preferences and habits.
Equity REIT sectors continue to maintain strong projections for NOI (Net Operating Income) growth. This is a key industry metric, indicative of higher earnings, leading to greater cash available for distribution, supporting dividend increases over the longer term.
abrdn Global Premier Properties Fund (AWP) is one of the best income-focused methods for accessing global REITs. AWP’s top holdings, which represent ~44% of the invested assets, are some of the best-in-class REITs in their respective industries.
As of April 30, 2024, AWP reported $40.5 million in unrealized gain on investments on its semi-annual report, a sum that adequately covers a full year's worth of distributions. Election-driven volatility has impacted REIT market prices, but the sector remains fundamentally sound to navigate geopolitics and produce steady NOI growth, to support rising dividends.
Conclusion
With AWP and HQH, we're able to leverage the skills of Abrdn’s experienced managers to benefit our income portfolio, which provides us with great income and the expectation of capital gains as we go down the road. I enjoy leveraging the skills of others to my benefit, who are also building a portfolio that, I believe, is as self-reliant as possible.
When it comes to retirement, many of you, like myself, will have the desire to be as self-reliant as possible and not have to rely on the goodwill or charity of others or the government to take care of you. You can achieve this by having a financial fortress to rely upon that can be buffeted by the winds of life or the storms that may arise and provide us the protection and security you need. A key part of that financial fortress will be the ability to have a strong and steady income stream pouring in, regardless of what may be going on in the hailstorm around us. This is the beauty of my income method and the value proposition of income investing.
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