CBRE Clarion Global Real Estate Income Fund: Only Half A World Away

| About: CBRE Clarion (IGR)


IGR is a CEF focused on global REIT markets.

The fund's performance, however, doesn't stack up well against U.S. focused REITs.

But that's the point and why it might have a place in your portfolio anyway, but only if you understand it.

The CBRE Clarion Global Real Estate Income Fund (NYSE:IGR) is a closed-end fund, or CEF, that buys real estate securities from around the world. It's similar to the Alpine Global Premier Properties Fund (NYSE:AWP), a CEF I recently reviewed, in many ways. But it isn't quite as focused on foreign markets. (Like AWP, IGR was a reader request.) Despite this difference, though, IGR's longer-term performance is still less than inspiring when compared to domestic-only options. You'll want to understand what IGR is meant to do before you add it to your portfolio.

Not great information
The first thing to note about IGR is that the information available from the fund sponsor isn't all that great. For example, the most recent portfolio breakdown that was available was dated June of 2015 and appeared in the semi-annual report. The fund put out a detailed review of the global real estate market at the end of the fourth quarter, so there's really no reason why it couldn't have included an updated portfolio breakdown.

This is a sore spot for me because too many closed-end funds are stingy with the information they provide to shareholders. Since they don't have to sell any new shares because of the structure of a closed-end fund, it smacks of a disregard for their shareholders. The funny thing is that the fourth quarter update was pretty decent from a big picture perspective, it just left out key facts that should really be available. It almost doesn't make sense. The website supporting the fund, meanwhile, is pretty bad. This isn't a reason to avoid the fund, per se, but it is black mark against it.

What's it do
IGR, as its name suggests, invests in real estate globally. As of the most recent portfolio breakdown (June of 2015) U.S. investments made up around 55% of the portfolio. U.S. preferred stock made up about nine percentage points of that. So while the fund has a global bent, it still holds a fair chunk of assets in the domestic market. AWP, for comparison, only has about a third of its assets in the U.S. market. So, of the two, AWP is clearly the more global offering.

IGR portfolio breakdown. Source: CBRE

Which helps explain one key difference between the two: performance. IGR outdistances AWP over the trailing three- and five-year periods based on total return, which includes reinvested distributions. On a year-by-year basis the real difference between the two funds becomes more notable, with one usually outperforming the other by a wide margin followed by a complete reversal of the relationship. However, with the strength of the U.S. real estate investment trust, or REIT, market in recent years, IGR's trailing periods outperformance is logical.

When I looked at AWP I compared it to the Cohen & Steers Total Return Realty Fund (NYSE:RFI), which is a purely domestic fund. The same trend was apparent, with AWP alternating performance wise with RFI and coming up short over the trailing three- and five-year periods. The performance at RFI and IGR is more similar than either fund's performance is when compared to AWP. Again this makes sense based on IGR's heavier weighting in the United States.

That said, there's still enough variation that if an investor didn't understand that part of IGR's purpose is to provide global diversification, they might sell at the wrong time. Last year is a case in point, since IGR was down around around 5.5% and RFI was up by 5.5%. In 2012, however, when RFI was up 17% and IGR advanced 24% investors might have gotten the impression that IGR was the "better" fund. Even though it was more likely the different investment focus that really led to the disparate performance in each period.

So that's takeaway number two here. IGR is a global REIT fund intended to provide diversification. It's similar in many ways to AWP, but with a heavier weighting of domestic securities. That might be exactly what you want, though, since AWP's price moves are often extreme when compared to the domestic REIT market. Indeed, IGR provides something of a middle ground.

Some other things...
With that as a backdrop, here are some other details worth noting. IGR uses leverage, which can boost results in good market, help augment income in flat to good markets, and exacerbate losses in down markets. Where you fall on the issue of leverage is up to you, but IGR is fairly modest in its use, with leverage at around 10% of assets (based on the semi-annual report). That's roughly in line with AWP.

Cost wise, IGR's expense ratio is around 1.15%. That's fairly reasonable based on the global investing going on and the use of leverage. AWP's expense ratio is around 1.3% and RFI's is a very modest 0.95%, for comparison purposes (RFI doesn't use any leverage).

IGR's distribution yield, meanwhile, is 8.5%. That's notably lower than AWP's 11% but about the same as RFI's 8% or so yield. Although yield hungry investors might be tempted to chase the higher yield, 8.5% is a much more manageable payout. In fact, taking into account IGR's 17% discount to NAV the fund's NAV distribution yield is close to 7%. That, in my eyes, is a far more secure payment than what you'll get with AWP. However, like AWP, return of capital has been an issue in recent years. You'll want to keep an eye on that.

With regard to the discount, IGR's trailing three-year average discount is around 12%-notably less than the current 17%. So for those looking to trade premiums and discounts, now could be a good time to take a look. The trailing average five- and 10-year discounts are closer to 10%, according to the Closed-End Fund Association.

For the right person
When I look at IGR I can't say I think it's a great fund, but neither is it a bad fund. That's pretty much the same conclusion I came to with AWP. For a buy and hold investor, the point of these funds is portfolio diversification. You want them to zig when other funds zag. But you need to understand that dynamic going in or you're likely to misread the fund's performance and its place in your portfolio.

I don't have a particular preference for either IGR or AWP. But I would stress the heavier U.S. weighting in IGR for those who want the benefits of global REIT investing, but maybe with a little less edge than AWP offers.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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.

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