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The Income Investing Chart You Don't Want To Miss...

 April 19, 2012 10:16 AM


(By Street Authority)Sometimes it takes guts to be an income investor.

A few weeks ago, the S&P 500 closed above 1,400 for the first time since May 2008, before the Lehman Brothers collapse led off the financial crisis. In total, the index has gained a remarkable 11% so far this year (compared with 0% for all of last year).

That's good news, right?

Well, lower-yielding financials and tech stocks have led the move higher, while defensive high-yield utilities and master-limited partnerships (MLPs) have lagged to the downside.

For instance, the Alerian MLP Index is up less than 1% year-to-date, while the utility sector, down more than 3%, is currently the worst-performing sector in the S&P 500.

Last year, these two groups outperformed as nervous investors sought safe dividend returns amid volatile markets. This year, however, the reverse started taking place. Financial and technology companies listed on the S&P 500 have risen about 17%.

Investors have taken more chances on increased signs of economic recovery in the United States and easing concerns about Europe's debt crisis. As a result, some are investing their capital into riskier sectors, such as energy, that can benefit from economic growth.

As well, Treasury yields have spiked. Yields on 10-year Treasuries climbed to a recent high of 2.40% (before pulling back), from a record low of 1.67% in September.

The problem is the yields on many of my favorite high-yield sectors -- like MLPs and municipal bonds -- are loosely pegged to the 10-year Treasury yield. So as Treasury yields rose (meaning Treasury prices fell), prices for these securities fell in line with historical spreads.

In the past couple of weeks, yields have stabilized as the appetite for risk has fallen with the pullback in the market.


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