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  • Alex Pettee, CFA

Real Estate CEFs: Satisfying A High-Yield Fix

  • Last week, we analyzed High Yield Real Estate ETFs. This week, based on reader requests, we applied the same analysis to the Real Estate Closed-End Fund (CEFs) universe.

  • While CEFs are generally significantly more expensive and less tax-efficient than their ETF counterparts, CEFs can use leverage to amplify returns and have produced comparatively strong performance over the past decade.

  • Real Estate CEFs typically hold a broader range of securities than ETFs including preferreds, convertibles, and bonds. We examine the most popular CEFs with an average dividend yield of 7.0%.

  • Unlike High Yield REIT ETFs that typically invest in riskier or troubled companies to achieve their sky-high yields, CEFs can achieve comparable yields by levering-up a relatively higher-quality underlying portfolio.

  • While we believe ETFs are the more suitable option for the vast majority of investors, CEFs can make sense for certain investors seeking high income, access to leverage, active management, and are willing to pay a steep expense premium for it.

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Hoya Capital Research & Index Innovations is an affiliated index provider and research firm that builds custom indexes tracking U.S. commercial and residential real estate sectors, including indexes tracked by exchange-traded funds (ETFs). 

Hoya Capital Research & Index Innovations