PGZ - RFI: A Great Real Estate CEF But Low Yield Compared To Peers And Very Expensive

2024-07-07 03:18:10 ET

Summary

• Cohen & Steers Total Return Realty Fund offers exposure to the real estate sector with an attractive yield.
• The fund's 8.37% yield provides higher income than the index, but it is lower than most of its peers. This may be suitable for investors seeking high income.
• The Fund's portfolio avoids the troubled commercial office sector, which risk-averse investors should appreciate.
• The fund managed to fully cover its distributions in 2023, but it has failed to do so in 2024 year-to-date.
• The fund trades at a premium valuation to its assets, which could be a drag on its performance long-term.

The Cohen & Steers Total Return Realty Fund ( RFI ) is a closed-end fund that investors can use as a method of getting exposure to the real estate sector of the American economy while earning a very attractive yield at the same time. The real estate sector might not be the first one that investors flock to right now. After all, numerous media outlets have been talking about the troubles that the sector has been facing due to "high interest rates." However, the truth is that today's interest rates are not particularly high by historical standards. In fact, today's rate would have been considered average or even low prior to 2000:

The problem, of course, is that nearly two decades of ultra-low interest rates have caused massive asset appreciation in just about every sector. In addition, many sectors of the economy have become addicted to incredibly low interest rates that their business models do not work properly when it actually costs something to obtain financing. This is a drag on some sectors of the real estate market because today's higher mortgage rates compared to a few years ago result in lower investment returns unless rents can increase sufficiently to cover the more expensive mortgage rates (or property prices decline). That has not been the case in all real estate sectors, and it is the factor that is responsible for all of the negative press coverage that real estate investments have been getting....

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