Two smart retirement funds with +8% returns

Co-authored by Treading Softly

Let me ask you this: Are you a specific, detail-oriented person, or are you someone who likes to think in broad brush strokes and envision the big picture? We can all be both types of people In different situations.

When it comes to vacations, I’m a broad brushstroke type of person, but my wife likes to have all the specific details nailed down. Conversely, when it comes to making a decision about the future, my wife likes to have a broader vision of what she wants to achieve, and I like to have specific goals to reach along the way.

When it comes to investing, it will be beneficial for your portfolio to blend these two characteristics into your style – being an investor in specific, distinct individual securities, as well as the opportunities that allow you to do so. You cast a wider net. This is one of the reasons why I don’t believe in investing in passive market ETFs as the only solution to my investing career. However, I also don’t believe in keeping only five great companies and gambling my entire future on the success of my ability to pick the right companies out of a hat. Instead, I think there’s a lot of room to be specific and general in your investing when it comes to your portfolio.

Today, I want to take a look at a couple of funds that allow you to cast a wider net on the general market or specific sectors but also allow you to continue collecting the well-earned income I require from all of my investments. This way, I still earn an excellent income with broad exposure to different parts of the market.

Let’s dive in!

Choice #1: USA – 10% return

Liberty All Star Equity Fund (USA) is a CEF (closed-end fund) that invests in a diversified portfolio of large-cap and value stocks, primarily in the US market. As such, since the beginning of the year, the CEF has outperformed the S&P 500 as it continues to line our pockets with usable income.

United States of AmericaThe company’s most significant holdings include some of America’s largest corporations, including several members of the Magnificent Seven. source

The United States is not a new kid on the block. CEF has a three-decade operating history with an impressive long-term total return correlation with the S&P 500 due to its unique mix of investment strategies. USA combines three value-style investment managers and two growth-style investment managers. source

USA does not use leverage in its investment strategy and does not have any interest expenses to incur. Overall, the fund comes with a very competitive expense ratio of 0.91%, which is a bargain for an actively managed fund that delivers strong performance while putting significant income in shareholders’ pockets.

So how does the USA manufacture large dividends if it does not use leverage and if its holdings pay little or no dividends?

USA actively manages its portfolio and maintains a variable allocation policy for its stocks, which total approximately 10% of its net asset value annually. In the process, the ECB generates highly tax-efficient distributions. The bulk of CEF payments to shareholders constitute long-term capital gains and QDI, and a very small portion are ordinary dividends. source

By maintaining a distribution policy linked to a fixed percentage of net asset value, payments to shareholders rise and fall with net asset value, and the IMF does not have to maintain a set amount and affect its future prospects by overpaying. The current USA distribution is calculated on a 10% yield, and the fund currently trades at a 2% discount to NAV.

Choice #2: RQI – Yield 8.4%

We continue to see great deals in the REIT industry amid discounted valuations. Major companies are collecting deals, either in the form of additional acquisitions or to transform and repurpose real estate assets for better prospects. Earlier this year, Blackstone acquired Apartment Income REIT for $10 billion in cash, including debt. Months later, Blackstone Real Estate acquired Tricon Residential at a 30% premium to Tricon’s stock price.

A review of historical performance shows that public REITs are among the few stock classes that have shown remarkable outperformance following the Fed’s tightening cycle.

Cohen & Steers High Quality Real Estate Income Fund (RQI) is a highly diversified CEF (closed-end fund) with a focus on equity REITs primarily in the US. RQI It boasts diversification across 196 REIT holdings, with significant allocations in data centers, industrials and telecommunications. These sectors are expected to benefit significantly from significant capital investments in AI, local manufacturing, and 5G/fiber infrastructure, making the RQI a major beneficiary of these booming industries. It is worth noting that the IMF’s best holdings are some of the high-quality REITs in US companies, which make up about 52% of assets. source

Fundamentals are strong in the global logistics sector through a combination of internal and healthy growth in manufacturing and e-commerce. This continues to drive demand for modern, well-located logistics assets. Additionally, growth in innovation industries such as artificial intelligence, 5G, and fiber deployment positions REITs focused on these innovative sectors (such as data centers and cell towers) to benefit significantly.

RQI currently offers a discount of up to 7% on NAV, giving you access to an already discounted industry at a cheaper price. The CEF operates with leverage of approximately 30%, with a fixed ratio of 81% at 1.6% and a weighted average duration of 2.4 years. The CEF’s total leverage carries an average interest rate of 2.4%.

RQI pays $0.08 per share each month, reflecting an annualized yield of 8.4%, to capitalize on the monetization potential of real tangible assets that are a critical component of the US economy.

Conclusion

With USA and RQI, I can collect premium income by casting a wider net on the general market. Although I am a firm believer in holding high-quality, income-focused individual securities, and have routinely covered a number of individual picks over the past few weeks, I do not want people who routinely read my articles to think that I am avoiding general exposure to various sectors in… market; I simply embrace both sides of the coin. Within Rule 42, I encourage every income investor to hold individual and diversified investments to accumulate significant income from a variety of sources. I treat any CEF or ETF as one position within this number of 42 positions. This is one of the two core principles of my Income Method, which is a philosophy for one’s financial life as well as a way to approach the market from a unique perspective.

When it comes to retirement, having general exposure to large swaths of the market that provide you with solid income can allow your portfolio to have a stronger income stream over the long term. Expenses are an inexorable force, and time inexorably advances. Fight them with an army of dollars fighting alongside you. This way, your retirement can be marked by abundance – an abundance of happiness, an abundance of freedom, and a legacy worth remembering.

That’s the beauty of my income method. That’s the beauty of income investing.