These three funds have received top marks.
By my completely unscientific polling, Thanksgiving is one of our nation's most anticipated holidays. No matter how divided we may seem, Thanksgiving is a day for relatives of all stripes to put aside their differences, break bread together, and reflect on our good fortunes. With the election a few weeks behind us, we are now free to focus our attention on giving thanks with family and friends and reflecting on the year that has passed. It has been one year since we launched our Morningstar Analyst Rating for funds, and in that time we have rated more than 125 closed-end funds, or CEFs, and nearly 925 mutual funds. The reports are available to Premium Members on Morningstar.com and to subscribers of many Morningstar products, including Morningstar Direct.
The CEF team is thankful for all the feedback and support that our readers have given us over the year, especially regarding the ratings. To show our gratitude, in this CEF Weekly we share portions of our Analyst Reports from three highly rated CEFs under full analyst coverage. If you are new to the Morningstar Analyst Rating, this article provides a detailed discussion of the methodology.
CBRE Clarion Global Real Estate Income IGR
Steve Pikelny awarded CBRE Clarion Global Real Estate Income a Morningstar Analyst Rating of Gold for its strong management, low fees, and a parent company that is firmly established in the real estate market.
(10/8/2012) CBRE Clarion Global Real Estate Income has strong management, low fees, and a parent company that is firmly established in the real estate market. The erratic behavior of the real estate market has led to equally erratic performance, but since shedding its leverage over the past four years, the fund has been a top performer in the global real estate category across fund vehicles. For these reasons, we believe the fund is one of the best options for investors to gain access to this market, especially if the fund trades at a discount. Overall, the fund has earned a Morningstar Analyst Rating of Gold.
Launched in 2004, in the middle of a real estate bubble, the fund logged three years of good performance before plummeting in 2007 and 2008. As with most real estate CEFs, the fund's high leverage ratio amplified the losses on its REIT holdings (which typically use leverage as well). In all, the fund's net asset value, or NAV, fell 86% from peak to trough. Unlike many real estate CEFs, however, managers decided to significantly scale back the use of leverage. While the fund still has a $300 million line of credit open, it does not currently use any leverage. Since this strategy change, the fund has both outperformed peers across fund vehicles while providing less volatile returns. Over the trailing three-year period, the fund was the top performer in the category on an absolute and volatility-adjusted basis. Although 2012 year-to-date performance has been lackluster (the fund has a total return of 19.5%, compared with the category average of 22.6%), it has also been less volatile. While the peer group lost an average 10.7% in 2011, IGR returned a modest, but positive, 1.0%.
The only obvious blemish of this fund is its distribution policy. Of the previous 21 distributions, each has included return of capital. However, this likely corresponds to unrealized capital gains: The fund's NAV has increased 11.8% over this period. While a distribution cut in the near future is not likely, in our opinion, the fund's lack of a UNII balance leaves it without a cushion against any downturn in the global real estate market.
We like that the fund has experienced managers who are also shareholders. Lead portfolio manager T. Ritson Ferguson has 18 years of management experience and owns between $500,000 and $1 million in shares. The management team has regional offices in North America, Europe, and Asia-Pacific, allowing it to view properties firsthand. Managers also have the advantage of drawing on the resources and proprietary research of CBRE, the largest real estate services firm in the world.