Fund Highlight: Cohen & Steers Realty Shares (CSRSX)
Martin Cohen and Robert Steers are often thought of as the grandfathers of real estate investment trust (REIT) investing. They are the founders of publically traded Cohen & Steers (CNS), a registered investment advisor managing assets for pension plans, endowment funds and investment companies, including each of the open-end and closed-end Cohen & Steers funds. They are also part of the team managing Cohen & Steers Realty Shares (CSRSX). The other team members are Joseph Harvey and Jon Cheigh.
Although the company’s mandate has broadened over time, at its start in 1986, Cohen & Steers focused almost exclusively on real estate securities. It was, literally, a first of its kind company. In that way it holds a stature in the investing community similar to the one held by Calamos (CLMS) in the convertible market. While focusing on one asset class isn’t inherently an indication of ability in that area, the company’s longevity is an indication of the stature of Cohen & Steers.
Cohen & Steers Realty Shares’ long-term performance, however, is quite impressive. The fund is within the top third of Value Line’s Real Estate objective group over the trailing three-, five-, 10-, 15-, and 20-year periods. Although shorter time periods have been less kind, relatively weak first-half performance is largely to blame. Moreover, the long-term record makes a strong case for an eventual uptick in performance.
Of interest, the investment objective of Cohen & Steers Realty Shares is total return. Although the fund seeks total return through a combination of both capital appreciation and income, the end goal is not to generate a high level of dividend income. As such, income oriented investors would probably be better served by a different fund. However, those seeking a fund that holds so-called “real” assets as part of a more broadly diversified portfolio would do well to consider it.
The fund normally invests at least 80% of its assets in common stocks and other equity securities issued by real estate companies. This can include common stocks, preferred stocks and other equity securities issued by real estate companies, including REITs and similar REIT-like entities. Cohen & Steers defines a real estate company as one that derives at least 50% of its revenue from the ownership, construction, financing, management or sale of commercial, industrial or residential real estate; or that has at least 50% of its assets in such real estate. Up to 20% of assets may be invested in securities of foreign issuers. This gives the management team a fair amount of leeway in their portfolio, but provides enough focus that investors can feel assured they are getting a real estate fund.
The managers use a bottom-up, relative value investment process. They use a proprietary valuation model in their selection process that quantifies relative valuation of real estate securities based on price-to-net asset value, cash flow multiple/growth ratios and a dividend discount model. The team incorporates both quantitative and qualitative analysis in their processes. Also integral to the process is an evaluation of a company’s management, strategy, property quality, financial strength, and corporate structure. Risk control, diversification, and liquidity also help drive the final investment decisions.
The fund has a relatively steep initial investment requirement of $10,000, with a $500 minimum for any subsequent investment in the fund. This may place the fund out of reach for smaller investors, particularly if it is intended to make up just a small percentage of a larger, more diversified portfolio. The high up-front cost, however, is offset to some degree by the extremely low ongoing expenses relative to the objective group.
Although the fund won’t be the right fit for every investor seeking real estate exposure, for those more focused on capital appreciation than income it would be a solid choice. Moreover, the fact that Cohen and Steers were there at the “birth” of the REIT industry adds a nice touch to the story and provides them with a depth of knowledge that more recent entrants simply don’t have.
At the time of this articles writing, the author did not have positions in any of the companies mentioned.