The purpose of this article is to highlight Nuveen Real Asset Income and Growth Common Fund (JRI), an income closed-end fund that could offer an investor's portfolio solid monthly income, a high yield, a moderate expense ratio, and diversification (across US and Non-US stocks, bonds and other securities). Highlighted on Morningstar's website, JRI seeks a high level of current income and long-term capital appreciation through investing in a portfolio of equity and debt securities issued by global real asset related companies
Market Cap: $164.3mil
Distribution Rate: 9.61%
Total Leverage Ratio: 32.25%
52 Week Range: $16.30 - 20.90
Current Market Price: $17.02
Expense Ratio: 1.65%
Here is why you should add JRI to your portfolio if you are a diversifying yield hungry investor:
- Current Market Price - JRI's last trading price was $17.02, which is only $0.72 away from its 52 week low, and a ways from its 52-week high, signaling a great buying opportunity for yield hungry investors. Not only is the current trading price attractive, but the discount to NAV is also -10.58%, making the fund both attractive from a 52-week trading range perspective and discount buying opportunity perspective.
- Distribution Frequency - One of the main characteristics a yield hungry investor should always add to his/her portfolio is a monthly distributing closed-end fund. Here are some reasons: 1) ability to collect dividend distributions faster, 2) accelerate reinvestments (which could increase overall return by 2-3% per year), and 3) the flexibility of switching investments/funds if you decide the current fund you are invested in is no longer advantageous or efficient in your portfolio and still pocket the distributions, instead of missing out of quarterly payouts. Overall, JRI's monthly distributions put it into the more attractive bucket of highly yielding investment vehicles.
- Distribution Composition - JRI's dividend distributions are solely made up of Fund Income, Short Term and Long Term Capital Gains, which follow the objective the fund markets to investors. When it comes to distributions, the first thing an investor should always scrutinize is the composition of the dividends to determine how sustainable certain investments may or can be for a long-term income portfolio. For funds like JRI, any Return of Capital (ROC) would bucket JRI into the "do not invest" bucket, since Real Asset Income and Growth funds are not supposed to be distributing the funds they are supposed to be using to grow and distribute income distributions with. There are some funds that are solely ROC funds, however, JRI and other funds with similar strategies are not to be mistaken for those types of funds (a good example of an ROC distributing fund is ETV, where the ROC distributions are explained. Read an article I wrote about ETV here, covering ROC strategies and fund objectives.
- Asset Allocation and Investment Vehicle Diversification - For most investors, diversifying portfolios has been one of the largest concerns going into 2014 since economic uncertainty has become the core concern across all markets. JRI's holdings are what I would describe as fully diversified (REITs, Stocks, Preferred Stocks, Corporate Bonds, etc.), investing real assets across Cash (1.80%), US Stock (19.44%), Non-US Stock (21.38%), Bonds (24.86%), and Other (32.52%). With an asset allocation this thorough, the uncertain investor could lock in a high-yielding monthly-distributing security with a cushion against any market (bond or equity, domestically or internationally) that may spiral into undesirable directions.
- Discount to NAV - Mentioned earlier, the discount to NAV is currently -10.58%. If JRI's market price closes a 10% discount gap in 2014 through price appreciation, that would give a yield hungry investor over 21%-plus return for the year assuming dividend distributions are reinvested monthly, locking in higher share prices but booking price appreciation on previously purchased shares. Before an investor solely relies on the discount as a great buying opportunity, there are a few details to consider regarding if the discount to NAV will actually converge to zero, which is what an investor actually wants out of a highly yielding closed-end fund. First, will a fund like JRI actually appreciate in price to trade at a zero discount? Second, will a small capital fund like JRI attract enough investors or market sentiment to appreciate in price? The answers to those two questions will lie solely on macro-economic developments in 2014 (and the impact they may have on JRI's investment assets), which are currently unknown or overly focused on the potential impacts of rising interest rates (which have not yet actually risen, even on Fed Tapering).
Considerations before buying JRI:
- Expense Ratio - For a fund valued at $164.3mil on assets, a 1.65% expense ratio is definitely on the higher-end of my expectations than the lower-end. My rationale for this is very simple: small fund, small management/expense fee. However, JRI is an international fund, which has a leverage ratio of over 30%, which may help explain the scale in expenses.
- High Leverage Ratio - JRI maintains a 30%-plus leverage ratio, which to an investor always requires some additional considerations and diligence. One main consideration I have when it comes to leverage is the uses and for what assets. JRI's assets (mentioned earlier) are invested in an assortment of securities, including REITs (which are investment vehicles that are normally leveraged). However, the concern with JRI is that a good portion of the assets are invested in US and non-US stocks, which may have negative effects if markets actually do experience a hiccup.
- High Yielding Closed-end Fund Alternatives - To be perfectly clear, there are some very compelling investment alternatives to JRI. A recent article I published covered AllianzGI Convertible & Income II Common Fund (NCZ) (read it here), which also pays monthly fund income distributions, and yielding an attractive 11.4%, however, NCZ is not a big player in the Non-US Stock markets, giving favor to JRI. Another recent article I published covered AllianzGI NFJ Dividend Interest & Premium Common Fund "NFJ" (read it here), which yields generously, operates at a very low expense ratio, manages a fund valued at $1,648.5mil, but pays out ROC as distributions (somewhat of a red flag in the long-haul).
Betalyst View: Overall, I believe there is a very strong market opportunity here for JRI. The two main reasons why I will be adding this fund to my portfolio are: 1) the discount to NAV is progressively converging to zero, which would mean investors would book a 10% price appreciation in shares, and 2) the international and asset allocation diversification paired with a 10% yield paid monthly is simply very attractive. On those two points, allocating 5% of a high yielding portfolio to JRI (for the next six months) may turn out to be a very favorable investment.