A High Yield Real Asset Fund That’s Not Constructed For The Current Environment
If we’re heading into a recessionary environment, the utilities sleeve of this portfolio could hold up comparatively well, but real estate looks really vulnerable here.
Every week, we’ll profile a high yield investment fund that typically offers an annualized distribution of 6% or more. With the S&P 500 yielding less than 2%, many investors find it difficult to achieve the portfolio income necessary to meet their needs and goals. This report is designed to help address those concerns.
Prior to 2022’s hyperinflationary rise, real assets and liquid alternatives had been failing to garner significant investor interest. With mega-caps and tech producing double-digit returns and more with just plain beta-level risk, there was little advantage to delving into assets that were generating lesser returns with more volatility. That’s changed over the past year and a half. Hard assets, such as commodities, metals and real estate have gotten another look. If inflation is going to peak at around 8-9%, it makes sense to have some of your portfolio dedicated to an asset class that generally responds more positively to that type of environment.
The Nuveen Real Asset Income & Growth Fund (JRI) may or may not be the best way to approach high inflation in your portfolio, but its diversified approach makes some sense. Through a combination of equities, fixed income and preferreds, it focuses on projects and assets involved in the “modernization” of the world. This is an area that will likely see steady, if not growing, demand in the years ahead and its ties to the more cyclical areas of the global economy should be more responsive to macroeconomic changes.
Fund Background
JRI’s investment objective seeks to deliver a high level of current income and long-term capital appreciation by investing in real asset-related companies across the world and the capital structure, including common stocks, preferred securities, and debt. Real asset-related companies include those engaged in owning, operating, or developing infrastructure projects, facilities and services, as well as REITs. Up to 40% of its assets may be debt securities of any credit quality, while non-U.S. exposure can represent 25% to 75% of the fund’s assets. JRI can use leverage and, to a limited extent, also opportunistically write call options can enhance yield and total return potential.
While investors may pivot to real assets in order to protect from inflation, it’s important to note that this isn’t necessarily an “inflation fighter” fund. It’s simply trying to generate a high yield from real asset-related companies. An inflation hedge might include more commodities and things like that, but as a more pure high yield product, the focus is on equities and fixed income.
Utilities and REITs, therefore, are obvious landing spots. Both are high yielding sectors and make a good foundational piece for the portfolio. Preferreds tend to also kick off higher yields with more modest risk, so their inclusion also makes sense. The fixed income portion is a bit more curious. A look through the annual report shows that 80% of bonds currently held have a maturity of five years or longer, are mostly lower quality and have considerably lower yields than what is available in the bond market currently. JRI’s managers may not be able to optimize the yield profile of this fund quickly at all.
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