Microsoft Dividend, Mexican Debt: Today's Hunt For Income Turns Investors Into Globetrotters

Remember what grandma?s basket of goodies used to look like?

Her portfolio, that is. What she planned to live on during her declining years. In the past, that probably meant a smattering of U.S. government bonds, perhaps some dividend-paying stocks.

Today, that wouldn?t keep a household going for long. A slow American recovery, along with Europe?s problems and a permeating sense of worry means greater interest in income-building assets. In turn, that means lower yields, and in some cases, a money-losing investment on government bonds. That means raised eyebrows over companies? ability to shell out steady cash. And that means the S&P 500?s dividend yield is near 2%, about a third of its 10-year average.

Gran needs to go global. These days, it?s as much about Mexican debt as Microsoft?s dividend.

That?s how PIMCO?s Curtis Mewbourne sees things. I recently caught up with Mewbourne, to determine where the fixed-income money man expects the greatest returns in this topsy-turvy world. Serving as both a portfolio manager and on PIMCO?s investment committee, Mewbourne possess a fine-tuned outlook. Edited excerpts from our conversation:

FORBES: What?s confronting income-oriented investors today?

Mewbourne: The changes in the global financial market mean that some asset classes and some securities are changing, and their use in a portfolio is changing, too. Five years ago, a European saving for his child?s education would have sensibly said, I want steady returns, so I?ll invest in European government bonds. Fast forward to today, just a few years later, and you may have a very different opinion on those investments. You?re looking at losing some of your principal and questioning the steadiness of that income.

Another matter: central banks around the world have reduced interest rates to incredibly low levels. That caused a distortion of the prices and yields from government bonds. In Europe, the U.S. and Japan, government bonds can yield less than inflation. You?re getting negative returns?you?re losing money buying those bonds.

Should a portfolio be concentrated in one area?a place with more perceived safety, perhaps?

We?re basically trying to broaden our opportunity set and trying to have more smaller exposures to more areas. It?s not so much about any one broad market. It?s more how many different opportunities you can find.

Where are you looking for bonds?

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