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courtneyk
Thesis
Cohen & Steers Complete Return Realty Fund (NYSE:RFI) is a closed-end fund, or CEF, targeted on REITs. As per its literature:
The funding goal of the Fund is to hunt to realize a excessive complete return by funding in actual property securities. Actual property securities embrace widespread shares, most well-liked shares and different fairness securities of any market capitalization issued by actual property corporations, together with actual property funding trusts (REITs) and comparable REIT-like entities
REITs as a sector have been closely impacted by increased charges. RFI is down over -20% on a worth foundation previously 12 months, and it shouldn’t backside out till the Fed signifies the speed hike cycle is over.
Probably the most battered corners of the REIT sector is constituted by Workplace REITs. Workplace vacancies have risen as a result of earn a living from home motion and the downward stress on workplace valuations as a result of increased charges. The sector has a excessive leverage ratio which has decimated a few of the widespread equities within the house comparable to Vornado (VNO) and SL Inexperienced (SLG), that are each down over -70% previously 12 months. RFI has nearly no publicity to this sector, with a tiny 1.07% allocation to this house.
We just like the Cohen & Steers administration as a result of they’ve confirmed to be very savvy by the years of their allocation insurance policies, as mirrored of their complete returns and efficiency. RFI advantages additionally from one other development – market de-risking. RFI is a CEF that has no leverage, and has seen capital allotted to it somewhat than its leveraged Cohen CEF friends. In a down market, leverage magnifies unfavorable returns, therefore market contributors have shunned some extremely leveraged REIT CEFs.
Holdings
The fund holds a portfolio of REITs, with a really low focus to the battered Workplace REIT sector:
Sub-Sectors (Fund Reality Sheet)
That’s the great thing about shopping for right into a well-run fund – the portfolio supervisor will guarantee it allocates capital to one of the best sectors, and strikes away from problematic sectors.
The highest holdings within the fund are:
Prime Holdings (Fund Reality Sheet)
These are all well-known names within the REIT sector, with no surprises.
Analytics versus Friends
The under desk benchmarks the CEF’s analytics versus its friends:
We will see the CEF having the bottom beta from the cohort as a result of its unleveraged nature. The fund additionally exposes the bottom volatility as noticed in its lows commonplace deviation of 17 versus its friends within the CEF and exchange-traded fund (“ETF”) house. Cohen & Steers is a premier supervisor within the REIT house, and we are able to see that RFI’s complete returns don’t endure, even when it doesn’t take any leveraged threat.
The fund benchmarks efficiently in opposition to all its friends, talking very nicely to the fund supervisor’s efficiency and credit score choice capability. On the finish of the day, shopping for right into a CEF with out leverage is principally underwriting the portfolio managers. An investor is prepared to pay the next expense ratio to be able to entry a high quality platform with confirmed historic outcomes.
Premium/Low cost to NAV
This CEF has a really steady premium/low cost to NAV profile:
We will see how previously two years the fund has held a really tight vary from 0% to eight%.
It’s attention-grabbing to notice that RFI is now buying and selling at a premium, when its different CEF friends from Cohen are buying and selling at reductions. We imagine the rationale behind this incidence is the shortage of leverage uncovered by RFI. No leverage makes the fund much less dangerous and risky, therefore capital was moved away from CEFs with leverage to RFI.
One of many cornerstones of threat administration is to scale back leverage in a down market. Leverage magnifies returns, each on the upside and on the draw back. RFI has due to this fact benefited from the risk-off setting by way of allocations to a non-leveraged automobile.
Conclusion
Cohen & Steers Complete Return Realty Fund is a closed-end fund targeted on REITs. The CEF has no leverage and is presently buying and selling at a small premium to internet asset worth. The entire REIT sector has been negatively impacted by rising charges. Essentially the most battered sub-sector has been the Workplace REIT one, with names comparable to Vornado and SL Inexperienced down over -70% previously 12 months. RFI runs nearly no publicity to the sub-sector, with solely a 1.07% allocation. Cohen is a superb supervisor within the house, and has been capable of navigate historic traits very nicely.
We don’t assume the down transfer in REITs is finished but, with the Fed nonetheless tilting hawkish. Cohen & Steers Complete Return Realty Fund is essentially the most conservative allocation within the sector when in comparison with its friends. The RFI fund has the bottom commonplace deviation and beta, and has seen money inflows from a few of its leveraged sister funds. We discover the RFI CEF to be essentially the most conservative play within the house at this second.
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