REIT Fund IGR - 2014 Outlook

Seeking alpha reports on an attractive REIT fund:

"Looking through areas of the market that have underperformed this year for opportunities, one theme sticks out -- stocks that are perceived to be negatively impacted by higher interest rates. This trade has been particularly hard on real estate investment trusts (REITs). Raising interest rates could negatively impact REITs, particularly in a scenario where interest rates rise while the underlying economy stays weak. However, economic improvement can drive better underlying REIT fundamentals. If demand for office or retail space improves, it allows the owners of that space to raise their rents. The REIT sell-off this year may be a market overreaction that can be taken advantage of to generate excess returns in 2014.

The CBRE Clarion Global Real Estate Income Fund (IGR) is an option worth considering. This is a closed-end fund that invests in global real estate. IGR has a solid track record, offers an attractive distribution, and is trading at a discount wider than its historical averages. This article looks to offer a deep dive review of IGR to evaluate its attractiveness as an investment for 2014 and beyond.

Rising interest rates have been a concern for REIT investors this year. IGR's semiannual report ... show(s) returns for REITs in periods of rising interest rates. While this time may be different, the strong returns for REITs after initial sell-offs could bode well for IGR in 2014.


The negative view of REITs has driven underperformance YTD. Discounts on closed-end funds have also increased as investors sell to allocate capital to better performing areas of the market. At year-end, this has also generated one of the few opportunities in investors equity portfolios to harvest losses. This has opened up some opportunities in CEFs that may be worth taking advantage of.


Using an ETF with a similar investment objective gives a good comparison to allow for evaluation of the management's performance. The SPDR Dow Jones Global Real Estate ETF (RWO) appears to offer a relatively similar investment objective to IGR and should allow a good comparison to evaluate performance. ... based on NAV performance IGR has trailed RWO on a year-to-date basis, but it has outperformed on a trailing three-year basis. On a trailing five-year basis it has outperformed by more than 3% annualized.


The fund closed Dec. 26, 2013, at a 12.25% discount to the NAV or underlying value of the portfolio. This is below the 52-week average discount of 7.75%. The average discount since inception is 8.44%, so there is some room for the discount to contract. During the past 12 months the fund has traded with a discount as low as 0.10%, showing there is the potential for volatility of the discount to NAV. The current discount offers an attractive entry point for this fund. The discount is likely due in part to the weak recent performance of REITs because of concern about the effect of higher interest rates on REIT business models. REITs have sold off hard since the potential of tapering quantitative easing was put on the table by Ben Bernanke, and the fund's market discount to NAV has increased since May as well. As long as interest rates don't move too quickly and the economy is strong enough to support rent increases, REITs should be able to perform well, which should drive the discount to narrow."