JRI: Real Assets, Real Income. Updated

Summary

• Comprehensive review of the Diversified Real Asset Income Fund.
• Review of the approved merger proposal of DRA into JRI.
• Detailed performance update since our initial article on the fund.

In my last article we took a look and completed an update of the Diversified Real Asset Income Fund (DRA). It was one out of two Nuveen funds that I have highlighted in my article "5 Utility Funds You Can Still Buy At A Discount."

In today's article, I wanted to do a complete update on the other Nuveen fund mentioned in that article, the Nuveen Real Asset Income and Growth Fund (NYSE:JRI).

What's New?

In my previous article I mentioned that DRA was going to be merged into another closed end fund. That fund is JRI.

The biggest piece of news as it relates to the fund is that as of June 30th, 2017, the shareholders of the fund have voted and approved the merger of this fund into its sister fund, the Nuveen Real Asset Income & Growth Fund (JRI), which I have also written about. "JRI: Real Assets, Real Income."

The merger of the two funds is scheduled to close on or around September 11th, 2017.

As previously described, the two funds are substantially identical in strategy. The notable difference between the two is DRA's ability to make whole loans.

By combining the two funds, management expects to lower annual expenses and ongoing operating expenses through the synergies of running one larger fund.

Source: "DRA: All Good Things Must Merge?"

While the merger is a net positive for DRA shareholders, I believe the benefits for JRI shareholders will primarily come over the long term in the form of possible lower fund expenses.

Fund Updates

At the time of our initial look in "JRI: Real Assets, Real Income" the fund yielded a 7.45% distribution and traded at a discount of 9.92%. Today the fund yields a 7.35% distribution and is trading at an 8.69% discount to NAV.

Let's take a look at the portfolio changes.

Source: Nuveen JRI Website

One clear change in the portfolio is the reduction in common stock exposure (from 47.3% to 42.6%) and the shift to Preferreds (29.6% to 34%) and Corporate bonds. (14.2% to 17.7%). For anyone concerned with a possible market top, this should be welcome news to see the portfolio transition further up the capital stack.

The current top 10 of the portfolio now looks like this.

Source: Nuveen JRI Website

The major change above shows Dominion Energy and TransCanada corporate bonds making up the top 2 positions.

Looking at the portfolio broadly,

Source: Nuveen JRI Website

...we can see that just like its sister fund (DRA), JRI is managing it's effective maturity fairly well with just a .05 effective maturity.

One big difference however is the duration metric which is quite a bit higher at 6.49 and 9.02 leverage adjusted, compared to DRA's 2.69 & 3.76.

Finally, we can examine the asset allocation to see the fund is still primarily REITs and Utilities.

Source: Nuveen JRI Website

Next let's take a look at the performance numbers.

Performance Update

Since our last article on 9/8/2016, the fund's share price fell .89%, however the fund has achieved a total return of 5.73%, accounting for its distribution.

JRI data by YCharts

Year to date the fund has returned a solid 17.09%.

JRI data by YCharts

Looking at a broader comparison, we can see that since our update, the two closed end funds have performed nearly identically and both surpassed the open end mutual fund. They both however lagged the S&P 500, mostly accountable to the volatility experienced in Q3 and Q4 of 2016.

JRI Total Return Price data by YCharts

On a YTD basis however the two closed end funds have handily beat the open end peers and broader market as a whole.

JRI Total Return Price data by YCharts

Bottom Line

The fund has certainly performed well in 2017 and has delivered on its income promise.

While it is easy to compare this fund to an equity fund, in reality what we have here is a real asset income fund investing in real estate, utilities and infrastructure.

Unlike its sibling fund, it is positioned slightly more aggressively as a fixed income fund however that is all subject to change with the merger of the two funds. It will be interesting to see whether DRA will increase its duration or JRI lower its duration to that of DRAs.

Considering that DRA is a significantly larger fund, if the portfolios are merged, it would be fairly safe to assume that the combined fund will resemble DRA's portfolio more than today's JRI.

Both funds are worth a look however between the two funds, I personally prefer DRA for its lower effective duration. What that means is that with a lower duration, DRA would be better positioned in case of any further rate hikes.

For a comprehensive look at JRI, please take a look at my initial article, "JRI: Real Assets, Real Income."

I hope this was a helpful article that gave you an initial look at an interesting closed-end fund and was able to peak your curiosity to take a deeper look into it.

Questions? Let's keep the conversation going.

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Analyst’s 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.