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3 Keys To Navigating A Low Return Environment (Video)

2015 has me wondering – is this a precursor to what the future could look like? That is, are the low returns across so many asset classes likely to be a sign of what’s to come? In a BNN interview from this morning, I laid out the case for why returns are likely to be lower, and how we can be proactive about it. Here’s the gist of my thinking: We know that the Global Financial Asset Portfolio is roughly a 45/55 stock/bond portfolio today. We also know that bonds likely won’t generate high returns in the future, given the low interest rate environment (current rates are a very reliable indicator of future returns). We also know that stocks are overvalued by many metrics, and are very likely more risky than they were in 2009/10/11. So, let’s be generous on the stock side and assume 10% returns and 3% from bonds (also generous given the aggregate yield of about 2.5%. That gets us to about 6.5%. But what’s scary about the 6.5% is that it will be driven mainly by the inherently more risky piece of the portfolio – the stocks. So, returns are likely to be lower and/or riskier than we’re used to. Given this high-probability outcome, I think the markets have forced us to get creative to some degree. No one in their right mind is going to hold a 30-year T-bond to maturity, given the near-0% probability of generating a high real return. Likewise, given the risks in stocks, I think you have to be somewhat selective about where you diversify. So, what can we do? I offered three keys: Control what you can control. The only way to guarantee higher returns is by reducing taxes and fees. My general rule of thumb is to try to always maintain a 366-day time frame and never pay more than 0.5% per year in fees. Diversify, but don’t diworsify. You can be diversified without owning everything in the whole world. This market environment is forcing us to be somewhat selective about where we diversify our assets. I focus on a cyclical approach . Learn to be dynamic without being tax- and fee-inefficient. A static 50/50 or 60/40 isn’t likely to generate the types of returns investors have become accustomed to. You can be strategic in your portfolio without being hyperactive. This could mean a more thoughtful approach to rebalancing, or it could mean veering more into strategic asset allocation. “Active” is only a four-letter word in this business if it’s tax- and fee-inefficient. After all, as I’ve discussed repeatedly , we all have to be active to some degree, but there are smart ways to do this and self-destructive ways to do this… You can watch the full interview here: Share this article with a colleague

Comparing 2 Monthly Eaton Vance Income Closed End Funds EOS And EOI

Summary EOI has a steady monthly income ($0.0864) of 7.8%. EOS has a steady monthly income ($0.0875) of 7.6%. Total return for both funds beat the DOW average over the last 30-month test period. EOS Fund is higher than 30% in Tech companies. Moderate downside protection and income from covered call writing. This article compares the Eaton Vance Enhanced Equity Income Fund II (NYSE: EOS ) and the Eaton Vance Enhanced Equity Income Fund (NYSE: EOI ), for steady monthly income. The differences between these two funds and how each fund has its place in the investment world, will be shown by looking at total return, company allocation, the use of covered calls and the distribution break down of each fund. Both funds use covered calls on a different group of companies to smooth out some of the volatility of the market. The EOI fund and EOS fund both invest in large Cap and Mid Cap companies and would be a good addition to a portfolio needing more diversification in this category. The big difference between them is that EOS tries to model the Russell 1000 and EOI tries to model the S&P 500. Both of these funds would be good for a tax deferred account because of the large amount of long term and short term capital gain in the distribution amounts. If you need a similar fund for a taxable account please see my articles on the Eaton Vance Tax-Managed Buy-Write Opportunities Fund (NYSE: ETV ). Yearly Income percentage and Total Return Being in retirement, my goal is to have a steady monthly income, without the swings of dividends that are paid on a quarterly or yearly basis. The EOI fund distribution of 7.8% ($0.0864/Month) return in today’s low interest rate environment is fantastic. This distribution is slightly higher than the EOS yearly distribution of 7.5% ($0.0875/Month). I calculated the total return of EOS and EOI over a two-year plus six-month period starting with January 1, 2013 till July 2015 YTD, 30 months in total. I chose this time frame since it included the great year of 2013, the moderate year of 2014 and the moderate year of 2015 YTD. EOS outperformed the DOW average by over 18%. For the 30-month period, the DOW total return was 37.52% and EOS beat it at 56.13%. EOI total return was 46.18%, beating the DOW total return by 8.66%. Fund Symbol Total Return For last 30 months Yearly Distribution Difference from DOW Baseline Difference EOI 46.18% 7.8% 8.66 EOS 56.13% 7.5% 18.61 DOW Baseline 37.52% —— Company Allocation The Eaton Vance website gives a full list of the companies and percentage of each in the fund portfolios for the latest quarter. The table below gives the top ten companies for each fund and their percentage in their individual portfolios. Using price chart data, I calculated the total return of the EOI top 10 companies out of 61 that the fund owns. Seven outperformed against the DOW average in total return over the 30-month test period and three missed the total return baseline of 37.52%, Qualcomm (NASDAQ: QCOM ) at 14.82%, General Electric (NYSE: GE ) at 36.9% and Exxon (NYSE: XOM ) at 4.56%. Similarly for EOS, all ten of the companies beat the DOW baseline total return. The total percentage of the portfolio for the top ten companies of each fund is shown at the bottom of the table. EOS Company Percentage In Portfolio EOI Company Percentage In Portfolio Apple (NASDAQ: AAPL ) 6.60% Apple 4.63% Google Inc. (NASDAQ: GOOG ) 5.29% Google Inc. 4.08% Facebook (NASDAQ: FB ) 3.18% JPMorgan Chase (NYSE: JPM ) 2.69% Amazon (NASDAQ: AMZN ) 3.01% Exxon Mobil Corp 2.51% Visa (NYSE: V ) 2.74% Visa 2.36% Biogen Inc (NASDAQ: BIIB ) 2.70% General Electric Co. 2.36% Celgene (NASDAQ: CELG ) 2.69% Qualcomm Inc. 2.31% Medtronic PLC (NYSE: MDT ) 2.45% Amazon 2.27% Priceline Group Inc. (NASDAQ: PCLN ) 2.14% Walt Disney (NYSE: DIS ) 2.26% Walt Disney 2.13% Medtronic PLC 2.14% Total 32.93% Total 27.61% Source: Eaton Vance EOI pretty much follows its S&P 500 index while EOS is a bit heavy in tech compared to its Russell 1000 index at 31.77% of the portfolio Covered Calls Both funds sell covered calls for income and downside protection, but there is a difference in what they do. EOS sells covered calls against 48% of their individual company positions with an average duration of 26 days and 6.3% out if the money. EOI sells covered calls against 46% of their individual company positions with an average duration of 24 days and 5.4% out of the money. Covered calls provide both EOS and EOI fund portfolios some downside risk protection and extra income to smooth out the normal market gyrations. The management in using covered calls, has the time to use covered call exit methods, if the market price goes against them. The big difference is that EOS tries to follow the Russell 1000 and EOI tries to follow the S&P 500. For both funds selling covered calls on individual company positions provides a steady income that does well in total return in a strong up market and gives some downside protection in a moderate market. If you want to learn about covered calls, I recommend the books written by Alan Ellman on the subject. Distributions Each month, both funds issue a statement saying which part of the distribution comes from short-term capital gains, long-term capital gains, investment income and return of capital. It is best to have both funds in a tax-deferred account so that you do not have to handle the tax calculations for the different categories of the distribution and most of the income is taxable. The EOS distribution through June 2015 YTD was 7.9% investment income, 0.0% short-term capital gains, 65.0% long-term capital gains and 27.1% return of capital. The EOI distribution through June 2015 YTD was 17.1% investment income, 0.0% short-term capital gains, 60.8% long-term capital gains and 22.1% return of capital. This is typical with short-term and long-term gains being a significant part of the EOS and EOI distributions. The funds do really well in a strong up market and follows the market in an average market. The fund managers advise against drawing any performance conclusions from the distribution breakdown. They do manage the fund payouts to try and keep the monthly payment constant. For a full explanation of return of capital, please refer to the articles written by Douglas Albo (CEFs and Return Of Capital: Is It As Bad As It Sounds). Conclusion EOI does not perform (Total Return) as well as EOS so EOS gets the nod here. Both funds follow the market and provide steady income, with fund price muted both on the upside and down side swings. Both funds are a good income vehicle in a tax-deferred account. they give a high monthly distribution , which is steady and beats the DOW averages over the test period of 30 months. They also provide someone like me, who generally picks his own companies an easy means of buying a diversified portfolio of large Cap and Mid Cap tech companies, without having to research each company in detail. EOS and EOI are a good complement to individual company positions. The Good Business Portfolio has a 5.5% position in EOS because of its better total return and high technology component. This is the only fund in the Good Business Portfolio. Of course this is not a recommendation to buy or sell and you should always do your own research and talk to your financial advisor before any purchase or sale. This is how I manage my IRA retirement account and the opinions on the companies are my own. I am long on EOS, GE, DIS and ETV and do not own or intend to buy any other companies mentioned in the article. Disclosure: I am/we are long EOS, ETV, DIS, GE. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Arckaringa Basin Shale Provides Huge Potential For Linc Energy

Summary The Arckaringa Basin is estimated to hold billions of barrels of oil. Linc Energy has almost exclusive rights to this region and its vast reserves. The company has had a difficult time recently but has huge future potential. Introduction The Arckaringa Basin is an endorheic basin – that is a closed drainage basin that does not allow the outflow of water. Located in Southern Australia, the basin used to be seen as a giant 31,000 square mile chunk of land. That was until they discovered oil. Arckaringa Basin v. Poland – Property Correspondent The Arckaringa Basin is quite huge with the above map showing a comparison to the country of Poland. More so, the basin already has some huge mining projects in place. On the bottom right of the map you see the Olympic Dam Project, which is a mining project run by BHP Billiton. The mine area contains the world’s single largest uranium deposit and fourth largest copper deposit. Oil Discovery Before we go onwards to talking about the potential of the Arckaringa Basin and its huge oil reserves, we must first talk about the discovery of oil in the region. Oil was first discovered in the region by a company known as Linc Energy (OTCQX: LNCGY ). The company first discovered oil in the region in 2010 and then underwent further analysis of the oil it found in 2011. Current estimates for the total amount of un-risked prospective resources in the basin are at 95 billion barrels of oil equivalent. On a risked basis, based on the probability of geological success, the area is expected to have roughly 3.5 billion barrels of oil on a risked basis . Oil Location and Amount Either way you slice it, this is an impressive amount of oil for a company currently trading with a market cap of less than $100 million. Should the company manage to recover only a hundred million barrels of oil – a pittance compared to the estimated reserves, the company could earn its entire market cap back earning just $1 per barrel. More realistically assuming a 10% recovery rate and $10 per barrel (roughly half of what the majors make) that would still turn out to almost $4 billion in profit for such a small company. (click to enlarge) Arckaringa Basin Licenses and Infrastructure – Linc Energy SAPEX The above map shows the current map of the area along with the different infrastructure in place along with the locations where Linc Energy has either a petroleum exploration license or is currently in the process of applying for one. One important thing to note is the company already has most of the basin covered in terms of licenses. Linc Energy Situation Now that we have talked about Linc Energy’s stake in the Arckaringa Basin along with talking about the discovery of the formation it is now time to talk about Linc Energy’s situation specifically. Linc Energy’s stock has seen a difficult time with much fluctuation. The company saw its stocks hit highs of $43.50 per barrel in 2008 before dropping down to as low as $7.36 during the crash lows. The company then saw a broader recovery in its stock price following the 2010 discovery up to a high of $30.83 in 2011. The company then saw its share price crash down to settle at around $7 for the second-half of 2012. The company then saw a spike to $29.55 in 2013. However, since then, and continuing throughout the current oil crash, the company has seen its stock price drop down over time to recent lows of $1.30 per barrel. Invest Linc Energy has been a falling knife in terms of share prices especially over the past two years where the company has lost almost 96% of its value. However, the company has a present market cap of just $79.3 million. Much of the long-term crash has been a result of the company’s delay in investing in the Arckaringa Basin. However such a delay will not last forever. Assuming the company continues working, it will eventually start producing significant amount of oils in the region which should provide a significant boost in the company’s stock price. More so, the current oil crash has helped exacerbate the trouble that the company’s current stock price is facing. That means that the company’s stock price is artificially low even based on its current troubles and as a result, the company represents a solid investment at current prices. Conclusion Linc Energy has had a difficult time recently. However, the Arckaringa Basin where it has significant shale stakes with impressive potential for future growth. The company has taken its time developing this resource but currently has all of the necessary permits in place to properly use it (with the exception of a few that are currently in process). More so, due to other major projects in the region, significant infrastructure already exists for when the project gets running and the company can start producing oil. For investors looking for a relatively risky investment with huge potential, Linc Energy represents one great choice. Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.