In December 2016, Brookfield Asset Management merged three of its funds to form the combined Brookfield Real Assets Income Fund (RA, Financial). Since then, the fund has helped raise Brookfield’s profile in the asset management sector and infused flexibility into its asset allocation. The fund is also showing signs that a bullish reversal has been in place since the middle of March.
The three original funds had a focus largely on debt. But these more recent moves have allowed Brookfield to pursue a more dynamic approach, allowing investment decisions to be dictated more closely by the changing needs of the market.
The fund’s elder sibling is the Brookfield Global Listed Infrastructure Income Fund (INF, Financial), which was formed in August 2011. When looking more deeply into the fund, we can see that 80% of its managed assets are in publicly traded securities tied to companies in the infrastructure sector. The fund has $196.46 million worth of assets under management, and the stock has moved steadily higher since the beginning of 2016.
Impact of political upheavals and monetary policy
As is the case with most of the market, the impact of political upheavals on these stocks should not be ignored. We are still seeing escalating trade tensions between the U.S., China and Europe – and this is having a rippling effect throughout stock exchanges across the globe. This generated many of the declines experienced in similar funds during the month of March.
Ultimately, those declines can be viewed as new buying opportunities for the stock. In March, the Brookfield Real Assets Income Fund saw a steep drop in share price, falling 9.9% from its earlier highs of $23.93 in January. To a large extent, these bearish moves can be attributed to the panic felt by investors related to potential interest rate increases at the Federal Reserve. This was especially true after the release of January’s nonfarm payrolls report.
Deeper net asset value discounts and higher returns
On a year-to-date basis, the Brookfield Real Assets Income Fund is trading lower by -2.14% and the Brookfield Global Listed Infrastructure Income Fund has shown losses of -4.8% over the same period. This creates added discounts for investors relative to net asset values.With $888.3 million in net assets, the Brookfield Real Assets Income Fund has consistently generated higher returns through current income values and capital growth. The fund’s most recent monthly distribution was 19.9 cents per share and its net asset value discount currently stands at 5.29%.
The Brookfield Real Assets Income Fund’s weighted average duration of 1.4 years is another positive sign for prudent investors. When considering the rate of inflation and the consistently upward path of interest rates, it is important to understand that there will be repricing effects in most of the fund’s assets. As rates go up, the fund stands to gain (due to its weighted average period).
On the negative side, the undistributed net investment income for the stock should be noted. Since it is a direct indicator of dividend payment availability, investors focused on income might highlight the possibility that Brookfield will have distribution difficulties. When looking at the bigger picture, however, we must understand that roughly 41% of all closed-end funds have a negative undistributed net investment income. In the case of the Brookfield Real Assets Income Fund, this risk is partially mitigated as a portion of its current portfolio is devoted to infrastructure companies that pay their distributions as return on capital.
Elevated dividend yields
In all likelihood, the fund could continue to attract income investors because of its elevated payouts. The Brookfield Real Assets Income Fund offers broad exposure to U.S. and international securities with investments in high-yield and floating-rate debt assets. The stock yields 10.43% at current price levels ($2.39 per share). This creates some interesting opportunities for value investors given the recent declines in share prices. The promise of elevated income and a diversification into real assets helps the fund stand out in the current market environment.
Similar characterizations can be made in relation to the Brookfield Global Listed Infrastructure Income Fund, which most recently paid a monthly distribution of 8.17 cents. On an annualized basis, this represents a dividend payout of 98 cents per share, and a percentage yield of 7.94%. As the stock continues on its positive trend, broader sentiment seems to be falling in line with expectations. Accern Sentiment Analysis is now seen giving the stock a positive score of 0.15 on the Accern scale.
All together, the outlook looks stable and investors should consider the Brookfield Real Assets Income Fund as a steady option in closed-end funds that is prepared to capitalize on its four core advantages: portfolio diversification, a closing discount to net asset value, strong probabilities for capital appreciation and its elevated dividend yields for income investors.
Disclosure: The author has no position in any asset mentioned.