Sun 7 Jan 2007
I have mentioned the closed-end fund IGR before, and now is a good time to bring them up again… IGR is the “ING/Clarion Global Real Estate Income Fund”. While the full name is a mouth-full, it is quite a good fund, and a good fund to know about.
If you like REITs but think that the US based REITs are a bit overpriced or at least late in a bull cycle, you might want to consider diversifying some or all of your holdings into an internationally based fund like this.
The US REIT fund IYR and VNQ are good comparisons, they both track the Dow Jones REIT Index. While IYR currently yields 3.46%, and VNQ yields 1.91%, IGR has a much healthier yield at 6.3%. Oh, but it doesn’t stop there, the 6.3% is from normal monthly distributions — in 2006 it made two special dividend distributions, bringing the total yield for last year to a whopping 15% based on today’s closing price. (For some reason, BigCharts thinks that the yield is nearly 22%, though the dividend schedule and some quick math show that this is not accurate.)
You can take a look at it’s current holdings at morningstar. While it has about 50% of it’s funds in US based REITs, it also owns some harder to acquire REITs based on non-US exchanges. If US REITs face some weakness, the international components should help this fund find profitability, or at least cushion the weakness.
Right now is a pretty good time to buy IGR as the price recently dropped 12% and is at a good buying price. Looking at a 3 year chart for IGR, this type of drop is fairly uncommon, though there have been similar hiccups in the past. For investors, the juicy yield should provide you cushion for further weakness from here…
As we actually could be at a turning point in REITs or the broad stock markets right now, it wouldn’t hurt to keep the exit door in sight if you choose to invest in IGR…
Friday’s downward surge found a bid in the mid-21s, which is also coincidentally close to both the 50 day moving average and the short-term peak at the end of October. I would consider selling IGR if it closed below $21 a share (or if you want to give it additional room, you could use support in the $19 range). The idea here would be to sell and wait for the uptrend to re-commence with conviction before risking your capital. The $21 range is 4% away, and $19 is 13% away — if we’re wrong we should know quickly and be able to exit with a small loss.
If you’re not a trader but rather a buy-and-holder, the yield on IGR and the relative out-performance of IGR:IYR should give you good reasons to consider IGR for at least some of your REIT investments.
The fund is closed-end, which means that it can trade at a premium or discount to its net asset value (NAV). Thanks to the recent drop in price, the premium has now disappeared and it is back to trading on par with the NAV. If you’re patient you could wait to see if the fund returns to the pre-June standard of an 8% discount to NAV.
I have owned shares of IGR for the last few months… and while the 12% drop in price was very painful to experience, I think the price change provides an opportunity to buy this fund at a good price again.