When will interest rates come down? That’s the million-dollar question that’s been on the minds of US investors for quite some time. We began 2024 with the idea that the Fed would begin dropping its rate in June, but that never happened. Now the spotlight is on September.
Being tied closely to interest rates, the Real Estate sector is thought to be one of the beneficiaries of lower interest rates. If you’re looking for high yield income investments in this sector, CEFs can do the heavy lifting for you.
Fund Profile:
The Cohen & Steers Total Return Realty Fund (NYSE:RFI) is a closed end fund, a CEF. The investment objective of the Fund is to seek to achieve a high total return through investment in real estate.
The fund is managed by Cohen & Steers Capital Management, Inc., and invests in the public equity markets of the United States. The fund seeks to invest in stocks of companies operating in the real estate sector, including real estate investment trusts. It invests in stocks of companies across all market capitalizations. (RFI site)
RFI is one of the smaller CEF’s, with $281M in net assets. It holds 171 positions, with average daily volume of 71K, and a fixed monthly payout of $.08.
Dividends
Management announces each quarter’s monthly ex-dividend and pay dates prior to the start of the quarter. It generally goes ex-dividend in mid-month, with an end of month pay date.
At its 7/5/24 closing price of $11.66, RFI yields 8.23%.
Holdings
As of 3/31/24, the biggest sector position change since 2023 is in Telecommunications, at 13%, which replaced Infrastructure, which was 11%.
Industrials and Apartments both moved down 2%, and Data Centers moved up 1%, to 9%:
The reason for that rise in Telecommunications exposure was Crown Castle’s and American Tower’s reclassification from Infrastructure to Telecommunications. There were minimal changes in RFI’s top 10, which represented 52% of its portfolio as of 3/31/24, vs. 50.9% previously.
Performance
Comparing RFI’s performance to that of its top 10 holdings shows RFI outperforming the top 10 average performances in the past month, quarter, and year to date.
RFI seriously lagged its top 10 in price performance over the past year, but, due to its 8%-plus distribution yield, RFI’s ~1-year total return is 0.09%, vs. a 4.39% average total return for its top 10.
The 2 standouts in this group over the past year are Digital Realty Trust and Simon Property Group, up 31.34% and 23.59%, respectively.
Looking back further, RFI has had an average 9.43% price return, and a 9.62% average NAV return since inception, which implies a slight discount to NAV through the years. Its weakest returns have come in the past 1- and 3-year periods.
Valuations
CEFs’ daily valuations are calculated at the end of each trading day. Buying CEF’s at deeper than historic discounts to NAV can be a useful strategy, due to mean reversion.
At its 7/5/24 closing price of $11.66, RFI was trading at a 1.66% premium to its NAV of $11.47. That’s higher than its 1-year average of 0.31%, but lower than its 3- and 5-year averages.
Parting Thoughts
RFI’s deepest NAV/share discount over the past year was -5.98% in September 2023, while its highest valuation was 4.97% in January, when there was much talk of rate cuts happening sooner than later.
We advise waiting for a pullback, when you may be able to buy RFI at a discount.
All tables furnished by Hidden Dividend Stocks Plus, unless otherwise noted.
Read the full article here