Dividends Watch: Brookfield Real Assets Income Fund Poised For Gains

  • Dividend Investments
  • 9 Months ago
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Dividends Watch: Brookfield Real Assets Income Fund Poised For Gains

Stock markets continue to surge forward in the yearly rally that has already been posted in the initial periods of 2017.  But with slowing momentum showing across several critical sectors, it is important that investors look for ways to position for broader growth and elevated returns.  One option is the Brookfield Real Assets Income Fund (NYSE: RA), which is a closed-end investment fund with December 02, 2016 as its date of inception.

The Fund’s investment objective is to provide a higher total return, through high current income and growth of capital. To accomplish this, the Fund primarily invests in securities and other instruments in the “real assets” asset class.  This includes exposure to areas that like real estate securities, infrastructure securities, and natural resources securities.

Fund Management

The Brookfield Investment Management Inc. is the investment adviser of the Fund, which is managed by Craig Noble, CFA and Larry Antonatos.  Craig Noble has nearly 20 years industry experience and is Chief Executive Officer and Chief Investment Officer for the Public Securities Group.  Noble is also portfolio manager for the global infrastructure team and a senior managing partner of Brookfield Asset Management. Larry Antonatos has 26 years of industry experience and is portfolio manager for the Public Securities Group’s Diversified Real Assets strategy efforts.

In terms of market valuations, stock prices in RA are now trading at $22.80.  This equates to a discount of 11.2% relative to the current NAV $25.66.  Ultimately, this means that stock investors can use exposure in RA as a means for finding undervalued assets in an elevated market.

Since inception, the Fund’s NAV has generated returns of more than 3%.  This is encouraging given the relatively short time period the stock has been active.  The Fund pays a $0.1990 monthly dividend. At current prices, the distribution rate is 10.49%.   According to the recent dividend classification, the Fund’s year-to-date distribution shows that 78.29% is paid from net investment income and 21.71% is paid from returns on capital.

RA: Fund Holdings

For investors, it is important to assess the holdings that come with new positions in RA stock.  According to the official December 2016 fact sheet, the Fund is 24.75% leveraged. The Fund holds 318 securities with a weighted average coupon of 4.79%, a weighted average life of 4.49 years, and a duration of 1.86 years. The portfolio includes 65% fixed-rate securities and 35% floating-rate securities, with total net assets of $936.61 million (and 36,496,937 shares outstanding).

The Fund’s top 10 holdings as of December 31, 2016 are shown below:

Source: Fund Fact Sheet

Here, we can see a broadly diversified portfolio that includes the opportunity to gain value-price exposure to companies in several key industry sectors.   In the chart below, we can see the credit rating in assets that comprise the Fund:

Source: Fund Fact Sheet

These types of assets are typically associated with stronger potential for returns.  But it is alsoimportant to note that the asset classificagtions also provide the potential for volatility protection in addition to having the potential for elevated growth and returns.

Source: Fund Fact Sheet

Lastly, the chart above shows that RA’s assets can be divided into three key areas: corporate credit, securitized credit, and real asset equities.  Factors like supportive Fed policy and interest rate levels should continue to brighten the outlook for all of these areas and this is something that could help to close the NAV discount in RA positions into the second half of this year.

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