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RFI: Unlevered REIT CEF, Market-Beating Performance, Lower Risk, 8.7% Distribution Yield


  • RFI is an actively managed, unlevered CEF focusing on U.S. REITs.
  • The fund mostly invests in high-quality, low-risk assets, which reduces volatility and minimizes losses during market downturns.
  • RFI has performed particularly well during the coronavirus outbreak, outperforming its index and all other REIT CEFs.
  • RFI is a lower-risk, higher-reward investment opportunity, and of particular relevance during these volatile times.

Author's note: This article was initially released to CEF/ETF Income Laboratory members on April 7, 2020.

Eight months ago, I wrote about the Cohen & Steers Total Return Realty Fund (NYSE:RFI), which I believed to be a particularly strong, lower-risk REIT CEF, due to its diversified real estate holdings, market-beating total shareholder returns, strong 9.50% distribution yield, and no use of leverage. This last point is of particular importance during market downturns, as leverage amplifies losses, and can prove particularly ruinous if valuations collapse, as happened with most MLP CEFs.

Since the writing of that article, RFI has outperformed its index and all industry peers on a NAV basis, but only its peers on a price basis, as discounts have widened. RFI's comparatively strong performance was a boon to investors, most of whom have almost certainly seen significant losses in their portfolio. RFI also outperformed most of its industry peers on a leverage-adjusted basis, at least by my calculations; so it seems that the fund is able to generate some alpha, great news for shareholders once again.

Moving forward, I expect RFI to continue outperforming during market downturns, underperform during bull markets, slightly underperform most CEFs in the long term, but offer stronger risk-adjusted returns than its peers. RFI is an outstanding investment opportunity, and is particularly well-suited for more risk-averse income investors and those wishing to minimize their losses during market downturns.

As a final point, as the article was originally published close to a month ago, I decided to re-check these figures. RFI remains the best-performing CEF during the downturn, and has recovered quite a bit of ground in the past month.

Fund Basics

  • Sponsor: Cohen & Steers
  • Distribution Yield: 6.80%
  • Expense Ratio: 0.89%
  • Total Returns (NAV) CAGR since Inception: 10.0%
  • Discount to NAV: 7.42%
  • Holdings: 11

This article was written by

Juan de la Hoz profile picture

Juan de la Hoz has worked as a fixed income trader, financial analyst, operations analyst, and as an economics professor. He has experience analyzing, trading, and negotiating fixed-income securities, including bonds, money markets, and interbank trade financing, across markets and currencies. He focuses on dividend, bond, and income funds, with a strong focus on ETFs.

Juan is a contributor to the investing group CEF/ETF Income Laboratory which is led by Stanford Chemist. Features of the service include: managed income portfolios (targeting safe and reliable ~8% yields) making use of high-yield opportunities in the CEF and ETF fund space. These are geared toward both active and passive investors of all experience levels. The vast majority of CEF/ETF Income Laboratory holdings are also monthly-payers, for faster compounding and steady income streams. Other features include 24/7 chat, and trade alerts. Learn More.

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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (14)

Does anyone know if RQI has already invested the proceeds of the rights offering, and the timing of such investments (such as the recent crash)? Seems to me that would be the key investment advantage going forward.
TAS profile picture
Thank you for a well reasoned article.
Juan de la Hoz profile picture
Thanks for commenting @TAS !
So after all that, you conclude that RQI and RNP are better choices, the former which I hold.
Juan de la Hoz profile picture
Thanks for commenting @jazznut, not so much better, but higher-risk higher-reward choices. Nothing wrong with picking safer funds, just different preferences and needs.
what is your estimate of RFI's current unrealized gain? If that is small/negliglible relative to the dividend payout, that would be an indicator of the near-term likelihood for a either a dividend cut or a dividend that includes NAV-eroding return of capitol

As of today I estimate about $2.50 per share. I was just looking at it.
hey @Robin Heiderscheit on RFI's 4/27 distribution breakdown, they announced the last distribution was 46% return of capitol, how does that make sense if they are running a big unrealized gain?

Returning capital is more tax efficient than paying out capital gains, when your various buys and sells provide the characterization flexibility.

Also, with RFI, they sometimes characterize as distribution as one thing during the year and then when year end rolls around completely re-characterize.
Juan de la Hoz profile picture
A small update, RFI has slightly outperformed its index, VNQ, on a NAV basis during the past three months, but underperformed on a price basis, as discounts widen. Reasonably good results, althought nothing too spectacular, I think.
Leverage burns when market goes south. Long JMF. Thanks for the article.
You do know that jmf is being closed?
Yes, that was kind of my point. :-)
JMF was the LAST pipeline CEF I thought would liquidate, considering it's holdings, leverage, and dist. coverage, but it was maybe the first. This seems more like a "marketing" decision for Nuveen than a portfolio management one. Really, really disappointed. Anyone have a different insight? JMF was in better shape than CEN, others as far as I could tell.
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