How to Buy the Best REITs at an 18% Discount

How to Buy the Best REITs at an 18% Discount

Today, I’m going to show you some of my favorite REITs—and a novel way of buying them that lets you do so for 18% off!

But first, there’s one sector you need to avoid: financials.

In fact, you needed to avoid it two months ago, as I warned back on February 28.

What’s happened since then? Nothing good.

Financials Come Up Short

This underperformance you see in the above chart isn’t surprising, considering financials were up over 30% by the end of February—and you can see from this chart that they reached their top just when I called it:

Snapshot of a Correction

What’s going on here? The reality of earnings has run into investors’ lofty expectations. For instance, Goldman Sachs Group (GS) reported $8.03 billion in revenue and $5.15 in earnings per share (EPS) for the first quarter—both slight misses. The stock slumped.

But revenue still rose 28% from a year ago, and EPS almost doubled. Unfortunately for Goldman, it just couldn’t live up to investors’ high hopes.

There are a couple takeaways here.

First, recent performance does not necessarily predict short-term trends. If an investment has jumped in the last few months, you can’t expect that to continue.

The good news is that a recent downturn might be the prelude to an uptick—which was the case in financials back in the middle of 2016.

But the emphasis here is on might. Fact is, financials are still trading at elevated levels, so I think you should look elsewhere right now.

Where? Looking at each sector’s performance over the last year, it seems that the best deals are likely to come from real estate, healthcare and energy, in that order:

Real Estate: Home of the Bargain

Real estate has been unjustifiably lagging the broader market for months now. This is largely due to the big correction in REITs following the run-up at the start of 2016. But that correction was long in the tooth back when financials were peaking in February, so I recommended you consider 6 REITs that had favorable metrics:

Simon Property Group (SPG)
Public Storage (PSA)
Prologis (PLD)
AvalonBay Communities (AVB)
Welltower (HCN)
Equity Residential (EQR)

How have those REITs done so far? With the exception of SPG, pretty well:

A Steady Rise

On average, my picks have returned 1.1% since I first published them, versus the S&P 500’s 0.6% return. That’s also better than the real estate sector as a whole: the Real Estate Select Sector SPDR Fund (XLRE) has had a total return of -0.5% since I gave you those REIT picks.

Looking forward, you have even more great possible buys in the REIT universe beyond these 6 companies. (My colleague Brett Owens agrees; you can get three great REIT picks from him here.)

But in my opinion, the best way to access a big basket of REITs is through a small group of investments called closed-end funds.

Haven’t heard of them? You’re not alone.

While ETFs swell to a multi-trillion-dollar market, CEFs remain an obscure corner dominated by a few billionaires like Jeffrey Gundlach (the Wall Street titan often called the “bond god”), Bill Gross (yet another legendary bond king, who co-founded PIMCO and turned it into a multi-trillion-dollar behemoth), and Bill Gates. These investors actively buy and hold CEFs and are enjoying the gains these funds provide.

Strong Stocks at Bargain Prices

CEFs are great because they often trade a big discount to their net asset value (NAV), which is extremely valuable when considering REITs.

If you want to buy a basket of REITs and buy each one separately, you’re getting each at its actual market price when you do. If you buy a basket of REITs inside an ETF, you’re also getting it pretty much at its market price, since ETFs tend to trade very close to the NAV of their underlying holdings.

CEFs are different. Many can trade for over 10% less than what their underlying investments are worth.

A good example of this is the RMR Real Estate Income Fund (RIF), which is trading at a staggering 18.3% discount to its NAV. RIF’s top holdings include Simon Property Group (SPG), Equity Residential (EQR) and AvalonBay Communities (AVB)—three of my six top picks. Better yet, the fund yields 6.1%, which is higher than the average 3.6% dividend yield my six REIT picks are paying out.

So you’re getting the same assets at a cheaper price and a higher income stream. That’s the power of closed-end funds.

But that doesn’t mean RIF is the best CEF out there—it’s not even the best REIT CEF! To find the very best funds, we need to dig deeper than just the NAV and dividend yield.

If that sounds like work, don’t worry. I’ve done it for you.

I’ve just released a brand new special report that reveals my 4 favorite CEFs now. These 4 cash machines throw off rock-solid 7.6% payouts, on average—or 25% MORE than RIF.

And they have far bigger capital gains upside, too, because all 4 trade further below their historic discounts to NAV than RIF does. And as those discount tighten up, I fully expect all 4 to explode for 20%+ gains in the next 12 months!

Tack on their 7.6%+ yields, and we’re talking easy 30% wins here. And you’ll take a nice chunk of that gain home in cash.

But the discounts on all 4 of these hidden gems are closing, so time is short. Don’t miss your chance! Click here to get the names of all 4 of these 30% winners now!

About Author

Brett

Hi, I’m Brett Owens – and I’m a financial junkie. My “problem” started incollege, when I got a little dose of the stock market – man, was I hooked…in no time, I was reading the Wall Street Journal religously.

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