The Real Estate sector is performing well due to expected Fed interest rate cuts. Cohen & Steers Quality Income Realty Fund offers exposure to real estate assets, with a 7.4% yield. The RQI fund has a high current income objective, uses leverage, and has outperformed its sector and S&P over the past month and quarter.
In April this year, I issued a conservative article on RQI arguing that the risks stemming from forthcoming fixed rate debt refinancings are too high. Since the publication of that article, the interest rate outlook has improved, which has, in turn, sent RQI's price materially higher. In this article, I provide my update on the thesis and explain in detail why I am still reluctant to go long RQI.
REIT sector started a remarkable rally recently, which will likely continue. It is a perfect time to build a REIT portfolio for long. RQI is managed by a top professional team with REIT assets. Investors want to take the advantage and hand off the asset selection and management to those funds. Investors stand to gain more in both profit and efficiency by focusing on the portfolio strategy and structure construction.
REITs have underperformed due to rising interest rates, but fundamentals remain strong. Billionaire investors are taking advantage of the market sell-off to acquire REITs. Cohen & Steers Quality Income Realty Fund and Vanguard Real Estate Index Fund ETF Shares offer different approaches to investing in REITs.
The Cohen & Steers Quality Income Realty Fund presents an opportunity for long-term investors to buy into the real estate sector at lower valuations. RQI offers a high dividend yield of 8.3% and monthly distributions, making it appealing for income investors, especially retirees, due to its reliability over the last decade. The fund's strategy includes leverage and a diverse range of exposure across different subsectors of real estate, which helps mitigate concentration risk.
I collect income from individual companies and general sectors. Collecting from both sources is vital for income investors. Retirement that is marked by abundance is my goal.
We are bullish on REITs, and we think RQI is a good way to play a bull market in the sector. However, there are several reasons why we are unlikely to ever buy RQI. We discuss those reasons and also share what we are buying instead.