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Weekly Review: Real Estate CEFs - A Positive Week For The Sector

Dec. 07, 2018 2:56 PM ETAWP, IGR, NRO, RFI, SEVN, RNP, VNQ4 Comments


  • Review of where real estate funds and their benchmarks ended last week.
  • Recap of news related to the group, if any.
  • Comparison of the funds using several important metrics.
  • This idea was discussed in more depth with members of my private investing community, Trade With Beta. Start your free trial today »


Real estate investment trusts (REITs) are companies that own or finance income-producing real estate properties. Their securities have traits of both equities and fixed income securities. Their high-dividend yields provide consistent income, but valuations can swing along with the equity market. Historically, REITs have good performance, but lately, this sector is under pressure like other fixed-income investments in a rising rate environment. When we add the effect of leverage and the fact that closed-end funds are mostly targeted and used by retail investors, this makes them much more volatile and offers various opportunities for investors and traders like us.

The Benchmark

Vanguard Real Estate ETF (VNQ) has a positive week. The fund started at $80.27 and finished the week at $81.98, gaining 1.71 points.Source: Barchart.com VNQ daily chart (6 months)

The News

Source: Yahoo Finance

This week, one fund declared monthly distributions:

  • Neuberger Berman Real Estate Securities Income Fund (NRO) announced that it maintains its monthly distribution for December as $0.0400.

1. Highest Z-Score

We use the Z-Score to find statistically undervalued or overpriced funds in the sector. If the value of a Z-Score is negative, it signals a "buy" opportunity. Conversely, if you are looking for a "sell" candidate, you should be interested in a positive Z-Score value. We use a one-year basis to see how many times the current discount deviates from its mean for that period.

Source: CEFConnect.com

At this point, we can see that there are not any funds with positive Z-Score. That means that, based on statistics, we have not any short trade candidates.

2. Lowest Z-Score

Here, things look a little bit different. As we see from the table, there are plenty of undervalued closed-end funds. In other words, here, we can choose several "buy" candidates which we can add to our portfolios. Of course, we should not forget that this is only

At Trade With Beta, we also pay close attention to closed-end funds and are always keeping an eye on them for directional and arbitrage opportunities created by market price deviations. As you can guess, timing is crucial in these kinds of trades; therefore, you are welcome to join us for early access and the discussions accompanying these kinds of trades.

This article was written by

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Income arbitrage ideas along with managed portfolios and pair trades

Day trader whose strategy is based on arbitrages in preferred stocks and closed-end funds. I have been trading the markets since I started my education in Finance. My professional trading career started right before the big financial crisis of 2008-2009 and I clearly understand what are the risks the average investor faces. Being a very competitive trader I have always worked hard on improving my research and knowledge. All my bets are heavily leveraged(up to 25 times) so there is very little room for mistakes. Through the years my approach has been constantly changing. I started as a pure day trader. Later I added pair trades. At the moment most of my profits come from leveraging my fixed income picks. I find myself somewhere in between a trader and an investor. I am always invested in the markets but constantly replace my normally valued constituents with undervalued ones. This approach is similar to rebalancing your portfolio and I just do this any time there is some better value in the markets. I separate my trading results from my trading/investment results. I target 40% ROE on my investment account and since inception in 2015, I am very close to this target.

My main activity is running a group of traders. Currently, I have around 40 traders on my team. We share our research and make sure not to miss anything. If there is something going on in the markets it is impossible not to participate somehow. Some of my traders are involved in writing the articles in SA. As such Ilia Iliev is writing all fixed-income IPO articles. This is part of their development as successful traders.

My thoughts about the market in general:

*If it is on the exchange it is overvalued and our job is to find the least overvalued.

*Never trust gurus - they are clueless.

*Work hard - this is the only way to convince yourself you deserve success.

*If you take the risk it is you who has to do the research.

*High yield is always too expensive.

We are running a service here on SA. It is a great community with very knowledgable people inside. Even though we are not in the spotlight as often as we would like to our articles' results are among the strongest on SA. You can always contact me to share some of our articles and best picks so far.

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.

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