Strategic Entry Points for Income Investors in JRI: Navigating Leverage and Undervaluation in the Real Asset Sector

For long-term income-focused investors seeking undervalued opportunities in the real asset sector, the Nuveen Real Asset Income and Growth Fund (JRI) presents a compelling case study. As a closed-end fund with a 12.2% distribution yield and a current market price of $13.17 per share, JRI has drawn attention for its aggressive leverage strategy and its recent struggles to grow net asset value (NAV). However, a deeper analysis reveals that these challenges may represent a strategic entry point for patient investors willing to navigate the fund's risks.

The Fund's Leverage Strategy and Risk ProfileJRI employs a leverage ratio of 31.7%, significantly higher than the average for real asset-focused closed-end funds. This leverage, primarily through debt and preferred securities, is intended to amplify returns by purchasing more assets with borrowed capital. While leverage can enhance returns in rising markets, it also increases vulnerability during downturns. The fund's exposure to high-yield debt (up to 40% of assets) further amplifies this risk. Investors must weigh these risks against the potential for enhanced income generation and capital appreciation.

Challenges to NAV GrowthDespite its ambitious strategy, JRI has struggled to grow its NAV, which remains below pre-pandemic levels. This underperformance can be attributed to several factors:1. High interest rates that have constrained growth in real estate and infrastructure assets2. The inherent volatility of leveraged portfolios3. Market conditions that have not favored real asset investments in recent years

The fund's heavy reliance on debt financing and its exposure to real asset-related investments have created a challenging environment for NAV appreciation. However, these same characteristics may create opportunities for undervaluation that patient investors can exploit.

Undervaluation and Discount DynamicsJRI currently trades at a discount to its NAV, a common characteristic of closed-end funds but one that often indicates market skepticism. The discount has historically fluctuated between -0.07% and -9.37%, with an average of -4.95% over the past year. As of mid-2025, the discount has narrowed to -2.08%, suggesting growing investor confidence in the fund's strategy and potential for NAV growth.

The fund's recent actions to increase its distribution rate and narrow its discount reflect management's awareness of these valuation dynamics. These efforts, combined with the appointment of new portfolio manager James Kim, signal a potential turning point for JRI.

Distribution Strategy and SustainabilityJRI's 12.2% distribution yield is among the highest in the real asset sector, making it an attractive option for income-focused investors. The fund's managed distribution policy ensures consistent payouts, supported by a diversified portfolio of real asset-related companies. While the distribution is partially funded by return of capital, the fund's exposure to infrastructure and real estate investments provides a stable income base.

However, investors should closely monitor the fund's distribution sustainability. The fund's leverage and high-yield debt exposure create potential risks to its ability to maintain current payout levels. A thorough analysis of the fund's 19(a) notices and distribution composition is essential for assessing long-term sustainability.

Peer Comparisons and Competitive PositioningWhen compared to other real asset funds like Cohen & Steers Real Estate Opportunities and Income Fund (RLTY), JRI stands out for its higher yield and broader global exposure. RLTY offers a more moderate yield of 8.3-8.6% but has historically traded at a similar discount to NAV. Both funds benefit from the anticipated decline in interest rates in 2025, which could enhance their NAVs and distribution sustainability.

JRI's unique value proposition lies in its focus on infrastructure and real estate investments with inflation-hedging properties. This diversification across asset classes and geographies provides a buffer against sector-specific risks.

Strategic Entry Point ConsiderationsFor long-term income-focused investors, JRI represents a strategic entry point despite its challenges. Key considerations include:1. The fund's current discount to NAV and potential for future narrowing2. The fund's exposure to real assets that can serve as inflation hedges3. The management's proactive efforts to improve the fund's valuation4. The potential benefits of an anticipated decline in interest rates

While the fund's leverage and NAV growth challenges create risks, these factors also contribute to its current undervaluation. Investors with a long-term horizon and the ability to withstand short-term volatility may find JRI's high yield and strategic positioning appealing.

ConclusionThe Nuveen Real Asset Income and Growth Fund (JRI) presents a complex but potentially rewarding opportunity for income-focused investors. Its high yield, strategic positioning in the real asset sector, and current undervaluation create an attractive entry point for those willing to navigate its risks. As the fund continues to refine its strategy and benefit from potential interest rate declines, patient investors may find JRI to be a valuable addition to their income portfolios. As with any investment, thorough due diligence and ongoing monitoring of the fund's performance and distribution sustainability are essential for long-term success.