2 Top Contrarian Buys for the Rest of 2018

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By Michael Foster

Remember seven months ago, when investors were freaking out over North Korea and a future trade war?

They were also wringing their hands over popular volatility funds like the VelocityShares Daily Inverse VIX (XIV) , which blew up in February and destroyed millions of dollars of invested cash.

All of these shocks sent the S&P 500 tumbling over 10% in a matter of days!

But if you sold off then, you missed out on huge profits:

The High Cost of Giving in to Fear

This chart makes it pretty clear that dumping stocks on scary headlines is a terrible idea. But that doesnaEURtmt stop a lot of investors from making this same mistake over and over.

Obviously, you should avoid making the mistake the herd is makingaEUR"but thereaEURtms another, much more important, takeaway here: not only should you avoid doing what the masses are doing, you should also find a way to profit from their mistake.

And thataEURtms what weaEURtmre going to do today, using a contrarian strategy thataEURtms proven incredibly profitable over the last decadeaEUR"because itaEURtms driven by first-level investorsaEURtm many mistakes.

(IaEURtmve even done the legwork for you, hand-picking 2 fundsaEUR"belowaEUR"that let you tap 2 corners ready to aEURoesnap backaEUR for big gains nowaEUR"while paying outlandish dividends of 10%+!)

The 2 Sectors You Need to Watch Now

First, letaEURtms take a look at corporate earnings, which are red hot.

TheyaEURtmve been hot for a while. As I explained in February (and again in April ), corporate earnings are strong. Despite high expectations of 25% year-over-year earnings growth, the vast majority of companies in the S&P 500 are blowing past forecast profits. ThataEURtms a key indicator that the strong economy is delivering rising earnings that justify a continually rising stock market:

Earnings Bonanza Continues

Note how earnings are above expectations pretty much everywhere except energyaEUR"which should mean that all sectors except energy will have a strong year-to-date stock performance. But of course, the crazy market isnaEURtmt acting logically, so there are some sectorsaEUR"like real estate and utilitiesaEUR"where stock prices badly lag the fundamentals.

ThataEURtms served up some nice contrarian opportunities in those sectors, including the 2 off-the-radar funds IaEURtmll show you now.

Contrarian Pick No. 1: A Steady Eddie Utility Buy With an 11.5% Dividend

LetaEURtms start with utilities.

Looking back, weaEURtmve seen the sector enjoy over 21% earnings growth in the last year, resulting in across-the-board net margins of 11% (some of the highest margins this sector has seen since the financial crisis). Yet utilities have done this in the past year:

Snapshot of a Buying Opportunity

As a result, the P/E ratio for the entire sector has slumped to a meager 17.1, far lower than the broader marketaEURtms P/E of 24.9.

This indicates that now is a good time to buy inaEUR"and you can do it while pocketing a huge dividend if you choose the Macquarie/First Global Infrastructure Fund ( MFD ) , whose 11.2% dividend is 3.5 times greater than that of the sector benchmark Utilities Select Sector SPDR ETF ( XLU ).

No, that isnaEURtmt a typoaEUR"MFD is really paying over 11% to shareholders!

WhataEURtms more, this fundaEURtms international exposure gives it tremendous diversification, while its mix of stocks in utilities firms and energy companies (which make up about half of the portfolio), as well as corporate bonds in the utilities and energy sectors, boost its income and provide less volatility than youaEURtmd get from stocks alone.

Can we replicate that big income stream with real estate? In a word: yes.

Contrarian Pick No. 2: A Real Estate Play Throwing Off a Steady 10.5% Payout

Consider the Neuberger Berman Real Estate Securities Income Fund ( NRO ) , which is paying a 10.5% dividend and offering up exposure to a variety of real estate investments similar to the benchmark Select Sectors Real Estate SPDR ( XLRE ). But NROaEURtms dividend is triple that of XLRE, giving us a much nicer payout than weaEURtmd get from the index fund.

And before you ask, no, that high payout doesnaEURtmt mean NRO is trailing the index. On the contrary, it is crushing it.

NRO Laps the Benchmark

With a total return about 65% greater than the index fund since its IPO, you might wonder why this fund isnaEURtmt more popular.

The main reason is that itaEURtms tiny, with about $245 million in assets under management (XLRE, on the other hand, is managing over 10 times as much, with $2.8 billion under its belt). Another reason is that the fund is newaEUR"its IPO was less than three years ago.

Both of those factors play straight into the hands of contrarians like us, because they let us bet on a real estate comeback with NRO while taking advantage of the marketaEURtms irrational fearsaEUR"compounding our returns (and tripling up our dividends) as we do.

A Gold Mine of 8%+ Dividends Just Waiting to Be Tapped

How can these 2 funds throw off outsized 10%+ dividends year in and year out? Simple: theyaEURtmre a special kind of fund called a closed-end fund ( CEF ) .

In a nutshell, these often-ignored income plays routinely throw off dividends of 8%, 10% and higher, but theyaEURtmre way too often ignored by investors.


Well, like NRO, many of these funds are tiny, so they get next to no coverage from analysts and the business media.

ThataEURtms too bad for the herd, but itaEURtms great for us, because it lets us grab an early position and start collecting these incredible double-digit CASH payouts. Then we can sit back and watch as other investors pile in, driving our initial investment higher.

Best of all, thereaEURtms a dead simple aEURoeprofit alarmaEUR that goes off every single time this is about to happen!

aEURoeThe Most Reliable Profit Indicator IaEURtmve Seen in InvestingaEUR

ItaEURtms called the discount to net asset value (NAV), and itaEURtms easy to find on any fund screener. We donaEURtmt have to get into the weeds hereaEUR"all you really have to do is buy when this discount is unusually wide, then ride it to huge gains.

This is, hands-down, one of the most reliable profit indicators IaEURtmve seen in investing.

Just look at what happened with an obscure CEF called the PIMCO Dynamic Mortgage & Income Fund (PCI), payer of an 8.1% dividend as I write.

This unsung fund recently did something unheard of for a high yielder: it exploded for a stunning 46% GAIN (including dividends) in just 15 months!

The Profit-Making Power of CEFs

The great thing is that this gain was easy to spot ahead of time, because PCI was trading at a ridiculous 14% discount to NAV (or the value of its underlying portfolio).

The next move was simple: BUYaEUR"and cash in as the gap between PCIaEURtms market price and NAV narrowedaEUR"which is exactly what happened:

Slamming Discount Window Drives Massive Gains

The Next 5 Winning CEFs (with 8.2%+ dividends)aEUR"Yours FREE

IaEURtmve seen narrowing discounts like this generate huge gains in CEFs time and time again, and my team and I have just released 5 CEFs we see as the next PCIaEUR"primed for fast 20%+ price gains as their ridiculous discount windows slam shut, while handing you 8.2%+ average cash dividends.

IaEURtmm ready to GIVE you the names of these 5 blockbuster picks now! All you have to do is click here and IaEURtmll give you instant access to all my research on these 5 income powerhousesaEUR"their names, ticker symbols, buy-under prices and much more . A

But you must act soon. These 5 fundsaEURtm absurd discount windows are already starting to slam shut, so every day you wait erodes your gain just a little bit more. DonaEURtmt miss out!

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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