Cohen & Steers Total Return Realty Fund

Ticker: RFI, Buy below $13.50.

Why I Would Buy

1.       Deep Discount– Cohen & Steers Total Realty Fund is a closed end fund that currently trades 8% below its net asset value (NAV).

2.      Generous Dividend – RFI sports a 7% dividend yield which is derived entirely from income and capital gains (return of capital is not part of the fund’s payout). The dividends are paid monthly.

3.      Low Expenses – The fund charges just 0.84% of assets as fees. In addition, the fund’s discount to NAV further diminishing the impact of these already low fees .

4.     No Significant NAV Erosion – Most closed end funds suffer deep erosion of NAV over its lifetime, in the case of RFI however this hasn’t occurred to any significant degree. The NAV at IPO in 1998 was $15, currently it is a little over $13, and this despite paying very generous dividends during the intervening 18+ years.

What Could Go Wrong

1.       Underlying Assets May Be Overpriced – RFI invests in REITs and other Real Estate related securities. REITs are currently at a market high, setting the stage for a possible correction.

2.      Interest Rate Sensitivity –  REITs are an asset class that is sensitive to interest rates and would likely suffer price declines during a rising rate environment. In addition, the fund utilizes leverage, which exacerbates it’s interest rate sensitivity.

Disclosure: I am long RFI, please read additional disclosures here before taking any action based on this post.