Holding up through much of the market's recent volatility has been real estate investment trusts, explains Bob Carlson, editor of Retirement Watch.
We own the REIT sector through Cohen & Steers Realty Shares (CSRSX). We first bought REITs in early 2014 when the fund's share price was less than $68 and there have been distributions along the way.
We were interested in REITs because they had a rough 2013, barely registering a positive total return, while the stock indexes were soaring. At the time, REITs looked like a bargain.
Plus, we've been in an ideal economic environment for REITs. Low interest rates allow REITs to purchase other REITs or additional properties. Low rates also make the dividends on REITs more attractive.
Modest economic growth avoids overbuilding, allowing property owners to steadily reduce vacancies and increase rents. Even as the Fed gradually increases rates, REITs should do well.
I like the Cohen & Steers fund. It's probably the oldest fund dedicated to REITs and consistently is among the top-rated real estate stock funds. The fund rose 27% in 2014.
The fund first establishes an economic forecast. Then, it looks at the sectors and REITs most likely to benefit from that type of economy.
It buys quality companies selling at reasonable prices. Unlike many REITs and the REIT indexes, the fund won't buy a low-quality or even mediocre company for short-term gains.
Our portfolio also owns REITs through a closed-end fund, Cohen & Steers REITs & Preferred Income (RNP). This leveraged fund is split about evenly between REITs and preferred shares.
The fund recently had about 25% leverage, which is down from about 50% a few years ago. Its discount to net asset value recently dipped below 12% and is slowly working its way back to the long-term average of just over 10%.
The fund is up 27% for the past year and the yield is 6.9%. Lately, about 65% of the distributions have been from income and 35% from capital gains.
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