I recommend taking a position in energy services, such as pipelines and storage tanks, also called m...
Quality Income from Realty Fund
03/13/2020 5:00 am EST
The excellent fund owns the very best real estate investment trusts (REITs), and it’s trounced the broader market since inception while lining its shareholders’ pockets with consistent monthly dividend payments.
Year-to-date, its NAV has held steady while paying its 7.5% dividend. But its price, on the other hand, has been dinged by an out-of-whack 8%. As recently as this January, the fund traded at a premium to its NAV. It now trades for an 8% discount, which is about as close to “free money” as we’ll ever see on Wall Street.
As much as I love cherry picking my own REITs for our portfolio, Cohen & Steers presents a formidable total return hurdle. And, quite frankly, if we can purchase their portfolio for just $0.92 on the dollar, we should do so every day of the week.
Of course, this deal is not available every day, week or even month, but it does tend to appear (and subsequently disappear) every few years. RQI recently dropped to a 12% discount to its NAV. The last time RQI sold for 8% off, it was December 2018 when the market was completing its Q4 panic of that year.
That discount soon “resolved itself” with the fund taking off on a rocket ship through 2019 and much of 2020. Its double-digit discount quickly swung to a premium in which buyers were paying $1.04 for just $1 in assets!
Our “one-click” buy banks us 73 total positions, consisting of more blue-chip REIT stocks, bonds backed by their cash flows and even a few short plays to hedge. Add it all up and we’ve got a diversified portfolio across the US, with more than one-third of RQI’s properties on the West Coast.
RQI has been an exceptional performer for its entire life as a CEF. It has crushed the S&P 500, by a score (including dividends) of 408% to 288%. And over the last decade, it’s smoked the index 340% to 230%. It should be crushing the S&P 500 once again this year! However, the recent panic has knocked RQI’s price below its NAV. The last time this happened, the CEF soared.
REITs in general have a lot going for them today. With interest rates in the tank, they are able to borrow money for cheap. Their stock yields look very attractive against the backdrop of 1% to 2% alternatives. Let’s make sure we buy RQI before sanity returns to the markets and this excellent fund runs away again.
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