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In his 2016 letter to Berkshire Hathaway shareholders, legendary investor Warren Buffett wrote, “Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, it’s imperative that we rush outdoors carrying washtubs, not teaspoons.” According to Buffett’s sage advice, now might be the perfect time to invest in high-yield assets while interest rates remain elevated.

One popular high-yield stock that has caught the eye of income-hungry investors is AGNC Investment Corp (NASDAQ:AGNC). With a jaw-dropping dividend yield of 15.38%, it’s easy to see why. However, a closer look at AGNC’s performance reveals some notable risks.

The Risks of Chasing Yield: AGNC’s Shaky Track Record

While AGNC’s sky-high dividend yield is certainly enticing, the company’s recent performance paints a less rosy picture:

• Year-to-date, AGNC shares are down 4.3%

• Over the past year, the stock has fallen 5.18%

• The 5-year performance is a dismal -48.55%

• AGNC’s dividend rate has remained flat since early 2020

More on Buffett: Warren Buffett once said, “If you don’t find a way to make money while you sleep, you will work until you die.” These high-yield real estate notes that pay 7.5% – 9% make earning passive income easier than ever.

AGNC primarily invests in agency mortgage-backed securities (MBS), which are backed by government-sponsored entities like Fannie Mae and Freddie Mac. While these securities are considered nearly risk-free due to their government backing, financing them through short-term leverage has become increasingly challenging in the current interest rate environment.

As rates have risen, AGNC has seen its debt servicing costs skyrocket while its interest income has stalled. The company has relied heavily on derivatives like interest rate swaps and shorting U.S. Treasuries to hedge against higher rates and prop up earnings. But as these hedges begin to expire, AGNC’s ability to maintain its lofty dividend and shareholder value is being called into question.

A More Stable Alternative: Cityfunds Yield Fund

For investors seeking high yields backed by real estate assets without the excessive risks, the Cityfunds Yield fund offers a compelling alternative. While AGNC primarily invests in residential mortgages, Cityfunds focuses on home equity investments – a key distinction.

Here’s what makes the Cityfunds Yield fund stand out:

• Targeting a stable 8% APY with quarterly distributions

• Backed by a diversified pool of collateralized real estate loans

• Invests in home equity agreement-backed notes and short-term mortgage notes

• Offers a manager-guaranteed base yield of 7%

• Five-year term fund with redemption available after a 12-month lock-up

By investing in a mix of home equity-backed notes and short-term mortgages, Cityfunds aims to generate steady interest income that can be distributed to investors on a quarterly basis. The fund’s 65% to 80% loan-to-value target on its home equity investments provides an added layer of security.

Unlike AGNC, which has seen its book value per share plummet from nearly $18 to under $9 in just over four years, Cityfunds’ focus on home equity and conservative LTV ratios helps protect investor capital. And with a guaranteed base yield of 7%, investors can count on a reliable income stream even in challenging market conditions.

>;elm:context_link;itc:0;sec:content-canvas” class=”link “>See how much you could earn with the Cityfunds Yield fund >>

The Bottom Line

While AGNC’s 15%+ dividend yield might look like a golden opportunity at first glance, savvy investors know that all that glitters isn’t gold. The company’s shaky performance, overreliance on complex hedging strategies, and exposure to a shrinking agency MBS market should give potential buyers pause.

For those heeding Buffett’s call to “put out the bucket” and capture high yields while the economic storm rages on, the Cityfunds Yield fund offers a more stable, risk-adjusted way to invest in real estate-backed cash flows. With quarterly distributions, a guaranteed base yield, and a conservative approach to home equity investing, Cityfunds is making it rain for income investors.

Ready to learn more? Click here to explore the Cityfunds Yield fund and start putting Buffett’s timeless wisdom to work in your portfolio.

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This article Warren Buffett Says ‘When It Rains Gold, Put Out The Bucket’ And This High Yield Investment Is Making It Rain originally appeared on Benzinga.com

© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

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The Indonesia Investment Authority (known as the INA) is Indonesia’s state-run investment fund and has been around for about three years now. When the INA was first proposed, it was not really clear what it was going to do or how it would be structured. But with a few years of operations under its belt, the fund’s role in the Indonesian economy is snapping into sharper focus.

In 2021, the INA was seeded with $5 billion in state capital. This included about $1.7 billion in cash, most of which went into interest-earning bank deposits and government bonds. It also included $3.3 billion worth of shares in two state-owned banks, Bank Mandiri and Bank Rakyat Indonesia. In 2023, the fund’s total assets had grown to around $7.3 billion and it booked a net profit of $269 million.

The INA’s main source of income and operating cash flow right now is not from its investment portfolio, but rather interest income it earns on bonds and bank deposits, as well as the dividends paid out by Bank Mandiri and Bank Rakyat Indonesia. Indonesia’s banking sector is seeing strong growth, and the value of the shares the INA holds in these banks has increased from $3.3 to $4.8 billion over the last two years.

This was actually a pretty clever way to structure the fund because it minimizes the direct cash outlay required by the government. As long as the banking sector continues doing well, the INA’s shares in Bank Mandiri and Bank Rakyat Indonesia will generate cash flow while the fund continues to build its portfolio.

And that brings us to the next big question: what exactly is in that portfolio? The INA’s mandate is to invest in priority sectors such as transportation, logistics, healthcare, green energy, and the digital economy. In previous years the INA created sub-holding companies that invested in telecom tower operator Mitratel and state-owned pharmaceutical company Kimia Farma. They continue to hold these investments.

But most of the INA’s significant activity so far has been in the toll road sector. Through sub-holding companies, the fund has acquired ownership stakes in several toll roads in Java and Sumatra and what it’s doing is very interesting. Let’s look at the Pejagan–Pemalang toll road as an example. This is a stretch of highway in Java operated by the state-owned construction company Waskita Karya. Waskita is struggling financially at the moment in large part because it incurred lots of short-term debt building these toll roads.

The INA came in and acquired 100 percent of the Pejagan–Pemalang toll road from Waskita, which will help relieve some of the financial pressure on the state-owned construction firm. I think we are likely to see more of this, as Indonesia’s toll roads have significant long-term economic value and operators like Waskita can use injections of fresh capital. In the case of Pejagan–Pemalang, the INA then turned around and sold 53 percent of the toll road to a pair of foreign investors from the UAE and the Netherlands.

These kinds of co-investment partnerships are starting to develop in other areas as well. In 2023, the INA created a sub-holding company called PT INA DP World in which it owns a 51 percent stake. The other 49 percent is held by DP World, a massive logistics firm based in Dubai. Right now this co-venture is small in terms of its book value, but they are clearly setting it up to be a major conduit for Middle Eastern investment into Indonesia’s port infrastructure. A similar co-investment deal is in the works with China’s GDS to develop data centers, and there are big plans for green energy in the near future.

And this, it is becoming clear, is what the INA’s main function is likely to be. It isn’t funded nor does it really operate like a traditional sovereign wealth fund, such as Singapore’s Temasek. Temasek mainly reinvests accumulated reserves by buying and selling assets, often overseas, to maximize returns to the state. Instead, the INA is more of a co-investment fund designed to attract foreign capital into key parts of the Indonesian economy.

Historically, a big barrier to foreign investment in Indonesia has been investor uncertainty. Regulatory hurdles can be significant, and breaking into a market that is heavily dominated by state-owned companies can be daunting. Throughout 2023 it has become clear that one of the INA’s main functions is to help allay those concerns by partnering with foreign investors in priority sectors and we should expect to see a lot more of this activity in toll roads, logistics, green energy, and the digital economy moving forward.

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Honda Motor on Thursday said it would invest $11 billion to build batteries and electric cars in Ontario, a significant commitment from a company that has been slow to embrace the technology.

Like Toyota and other Japanese carmakers, Honda has emphasized hybrid vehicles, in which gasoline engines are augmented by electric motors, rather than cars powered solely by batteries. The Honda Prologue, a sport-utility vehicle made in Mexico, is the company’s only fully electric vehicle on sale in the United States.

But the investment adjacent to the company’s factory in Alliston, Ontario, near Toronto, is a shift in direction, raising the possibility that Honda and other Japanese carmakers could use their manufacturing expertise to push down the cost of electric vehicles and make them affordable to more people.

“This is a very big day for the region, for the province and for the country,” Prime Minister Justin Trudeau said at an announcement event in Alliston, where Honda manufactures the Civic sedan and CR-V S.U.V. The investment is the largest by an automaker in Canadian history, he said.

The company also plans to retool its flagship factory in Marysville, Ohio, near Columbus, to produce electric vehicles in 2026. The investment in Canada is a sign that Honda expects the technology to grow in popularity, despite a recent slowdown in sales.

Canadian leaders have been wooing carmakers with financial incentives as it tries to become a major player in the electric vehicle supply chain. Vehicles made in Canada can qualify for $7,500 U.S. federal tax credits, which are available only to cars made in North America.

Volkswagen said last year it would invest up to $5 billion to construct a battery factory in Thomas, Ontario. Northvolt, a Swedish battery company, announced plans last year for a $5 billion battery factory near Montreal.

Honda will benefit from up to $1.8 billion in tax credits available to companies that invest in electric vehicle projects, Chrystia Freeland, the Canadian finance minister, said Thursday at the event.

Canada also has reserves of lithium and other materials needed to make batteries, and generates a lot of its electricity from nuclear and hydroelectric plants, which allows carmakers to advertise that their vehicles are made with energy that releases no greenhouse gas emissions.

“As we aim to conduct our business with zero environmental impact, Canada is very attractive,” Toshihiro Mibe, the chief executive of Honda, said Thursday in Alliston. Honda will also work with partners to convert raw materials into battery components, he said.

However, recent declines in the price of lithium have raised questions about whether mining the metal in Canada will be profitable.

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