RQI - RQI: A Solid REIT Funds For The Long-Term

2023-08-01 13:08:38 ET

Summary

• The Cohen & Steers Quality Income Realty Fund is a closed-end fund that primarily invests in REITs.
• The RQI portfolio comprises premium blue-chip REITs that have proven their worth over time.
• This is a solid fund, and despite my concerns around housing, I do think REITs make for an attractive allocation broadly barring a prolonged economic crisis.

The wise young man or wage earner of today invests his money in real estate. - Andrew Carnegie.

The Cohen & Steers Quality Income Realty Fund ( RQI ) is a closed-end fund ("CEF") that primarily invests in real estate investment trusts, or REITs. It's managed by Cohen & Steers, a global investment manager specializing in liquid real assets, including real estate securities, listed infrastructure, commodities, and natural resource equities, as well as preferred securities and other income solutions.

RQI has an investment objective to deliver an attractive stream of current income along with the potential for capital appreciation. The fund seeks to achieve its investment objective by investing in real estate securities, including common stocks, preferred stocks, and other equity securities issued by real estate companies, including REITs and similar REIT-like entities.

One of the key benefits of investing in RQI is the potential for high yields. As a REIT, RQI is required to distribute at least 90% of its taxable income to shareholders. This leads to regular and often high dividend payments, which can be attractive for income-focused investors.

Access to Premium REITs

RQI portfolio comprises premium blue-chip REITs that have proven their worth over time. Names like Prologis (PLD), American Tower (AMT), Welltower (WELL), and Realty Income (O) are among the top holdings of RQI. These are established and well-managed REITs that have consistently delivered strong results.

Overview of RQI's Performance

The performance of RQI has been commendable, especially when compared to the broader REIT market. Against its peers, it's been pretty consistent over time, despite the asset class overall being not so hot.

RQI's Leverage Strategy

Leverage is a key component of RQI's investment strategy. It allows the fund to amplify its returns by borrowing money to invest in additional assets. As of Q1 2023, RQI had a leverage ratio of approximately 30%, meaning that for every $100 in net assets, the fund has borrowed an additional $30 to invest.

However, RQI's leverage strategy is not without its risks. Leverage can amplify losses in down markets just as it can boost returns in up markets. It is essential to understand that investing in RQI carries a higher degree of risk compared to other non-leveraged funds.

Despite this, RQI's prudent management of its leverage has largely offset these risks. The fund has locked in most of its borrowings at low fixed rates, thereby insulating itself from the sudden spikes in interest rates we've seen. Furthermore, the fund's allocation to high-quality, low-volatility REITs mitigates the potential downsides of leverage.

RQI's Expense Structure

RQI operates with a management fee of 0.85% and a total expense ratio, including leverage costs, of 2.33%. While these fees may seem high compared to other investment options, it's important to consider what you're getting in return.

With RQI, you're getting exposure to a diversified portfolio of high-quality real estate investments, professionally managed and optimized for high income and potential capital appreciation. Furthermore, the fund's use of leverage can significantly boost returns, more than making up for the higher expenses.

It's also worth noting that the fund's distributions are net of expenses. This means that the expenses are not subtracted from RQI's 8.3% yield. The yield you receive is what you get after all expenses have been accounted for, providing a clear picture of your actual returns from the fund.

Conclusion

This is a solid fund, and despite my concerns around housing, I do think REITs make for an attractive allocation broadly barring a prolonged economic crisis. The Cohen & Steers Quality Income Realty Fund offers a compelling investment opportunity for those seeking exposure to the real estate sector. With its focus on high-quality REITs, professional management, and attractive yield, RQI can be a valuable addition to a diversified investment portfolio. While the fund's use of leverage and higher expense ratio may pose certain risks, these are mitigated by the fund's prudent management strategies and robust portfolio allocation. Timing, of course, is everything.

For further details see: