Protected Principal Retirement Strategy: Keeping My Eye On JRI

Jul.29.13 | About: Nuveen Real (JRI)

I have written more than one SA article on REITs. I'm certain that SA readers know very well of my distaste for mortgage REITs (mREITS), and unfortunately of my regrets that the Protected Principal Retirement Strategy portfolio presently has only one REIT position.

In prior articles I have discussed both individual equity REIT stocks, and equity REIT closed-end funds. We presently have a small position in Nuveen Real Estate Income Fund (NYSE:JRS), which we were fortunate to acquire on a rare day when it sold at a discount to its net asset value (NAV). I am anxiously awaiting another day when the present premium of 8.6 percent will swing to a discount.

A while ago I came upon an alternative to JRS, although it is somewhat different in both its objectives and holdings. Nuveen Real Asset Income & Growth Fund (NYSE:JRI) offers a fairly unique opportunity to participate in REITs, utilities, energy and a little transportation infrastructure to boot. Let's take a closer look:


The Nuveen Real Asset Income & Growth Fund has as its objective the provision of high current income coupled with growth and appreciation. The following data has been taken from two sources: CefConnect and the JRI fund website.

Investment Mix - JRI invests in a combination of global equities, preferred stocks and debt instruments (corporate bonds). At present (as of 6/30/13) the breakdown was as follows:

  • Equities - 37%
  • Preferred Stocks - 29%
  • Corporate Bonds - 18%
  • Cash & Equivalents - 16%

Approximately 72 percent of its investments are in the U.S., with Australia constituting the largest percentage of JRI's global holdings. Fifty-three percent of its debt holdings are rated "B" or higher.

JRI's holdings are focused on companies that own, operate or develop infrastructure projects, facilities and services. Its non - U.S. positions can range from 25 - 75 percent of total holdings, and it can use covered call writing strategies to enhance income and returns.

JRI's top five asset classes as of 6/30/13 were:

  • REITs - 39.3%
  • Electric Utilities - 10.7%
  • Energy - 7.9%
  • Multi-Utilities - 6.7%
  • Transportation Infrastructure - 3.9%

The fact that JRI's largest holding is REITs is what first caught my attention.

JRI's largest holdings as of 6/30/13 are:

  • Summit Hotel Properties
  • National Grid
  • Starwood Property Trust
  • Hutchison Whampoa
  • Glimcher Realty Trust
  • Developers Diversified
  • Duet Group
  • Westfield Retail Trust
  • Pebblebrook Hotel Trust
  • International Container

Financial Metrics - JRI is presently selling at a 12.1 percent discount to [NAV]. This is very close to its 52 low of -12.4 percent. Its closing price on this past Friday was $18.54, about midway between its 52 week trading range.

JRI started trading in April 2012, so historic financial data is somewhat limited. It pays a managed distribution of $.3675 per quarter, all of which is categorized as income. The current yield is 7.86%. The yield on its NAV is 6.97 percent. The fund has an effective leverage of 30.68 percent, which is advantageous in a bull market, and less so when the markets turn bearish.

According to data on the fund's website, total fees and expenses (for the total fund) are presently 1.36 percent. Since its inception, JRI's share value has returned just four percent; however, the NAV has increased by 19 percent over this same period. Year-to-date, the fund price has increased by 5.3 percent, and the NAV has increased by 9.3 percent.


I am impressed that the distributions come from income, and not return of capital. I also like the fact that JRI's REIT exposure is global, and not just limited to the U.S.

A negative is that with approximately 56 percent of holdings in assets that are highly sensitive to interest rates, fund prices could come under some pressure going forward. The covered call writing might be able to offset some of this, should (when) rates increase.

From a fundamental standpoint, JRI's discount of over 12 percent is far more than its average discount of just over seven percent. This, coupled with over a 20 percent return on NAV bodes well for a possible return of the discount level to seven percent or lower. I believe this could result in positive movement of the underlying stock price.

Further insight into the quarterly distribution shows that unlike many similar closed-end funds, its payout comes from earned income. With JRI well positioned in the REIT sector, including a number of global positions, it is not unlikely that we could see some increase in the dividend in coming quarters.

Overall, I have JRI fairly high on my list for potential inclusion in the Protected Principal Retirement Strategy portfolio. Together with JRS, I will have to be satisfied with these being our REIT exposure until some of the individual equity REITs that I follow become a bit more attractive.

Disclosure: I am long JRS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This article does not constitute either a buy or sell recommendation for any of the funds mentioned.