Why NRO's Persistent Underperformance and NAV Erosion Signal a Sell for Income Investors

For income investors, the allure of high yields often comes with hidden risks. The Neuberger Berman Real Estate Securities Income Fund (NRO) has long promised attractive returns through its focus on real estate securities, but a closer look at its fundamentals reveals a troubling picture. Over the past three years, NRO has delivered a 3-year total return of -6.00% on its net asset value (NAV) as of 2025, while its share price total return of 27.89% masks a persistent discount to NAV of -5.14% as of November 2025. This divergence underscores a critical issue: the fund's market price fails to reflect the erosion of its underlying assets.

NAV Erosion and Structural Weakness

NRO's NAV has deteriorated significantly, with a 12-month total return on NAV of -4.47% as of 2025. Over the past three years, the fund has traded at an average discount of -5.93% according to data, indicating that investors are pricing in pessimism about its long-term prospects. This erosion is exacerbated by the fund's exposure to global real estate markets, which face headwinds from rising interest rates and geopolitical tensions, such as the U.S.-China tariff war. Unlike peers in emerging market (EM) corporates-many of which have seen credit quality improvements since 2023 according to research-NRO's portfolio has struggled to adapt to high-rate environments, leading to poor net asset growth as reported.

The Illusion of the 11.6% Yield

NRO's 11.6% yield, while tempting, is increasingly unsustainable. The fund's leverage arrangements have expanded, with debt financing capacity rising from $70 million to $90 million according to company announcements, a move that heightens credit risk. While the trailing 12-month dividend yield stands at 12.6% according to financial data, this metric relies on distributions that may not align with the fund's shrinking NAV. Fitch Ratings notes that fewer than 12% of NRO's issuers carry Negative Rating Outlooks in 2025 according to research, a slight improvement from 2023. However, broader credit trends-such as rising EUR corporate supply and elevated interest rates-pose risks to real estate and utilities sectors, which comprise a significant portion of NRO's holdings.

Peer Underperformance and Market Realities

NRO's struggles are amplified when compared to peers. Sustainable funds, for instance, outperformed traditional funds in the first half of 2025 with a median return of 12.5% according to Morgan Stanley research, while NRO lagged in high-rate environments as reported. The fund's focus on real estate securities has also left it vulnerable to sector-specific downturns. In contrast, EM corporates have demonstrated resilience, with improved leverage management and operational performance driving credit upgrades according to research. NRO's failure to mirror these trends suggests a misalignment in strategy or execution.

Credit Risks and a Pragmatic Outlook

The 2025 credit outlook further complicates NRO's position. Private credit, a segment with allocations in NRO's portfolio, is deemed vulnerable under elevated interest rates according to SSGA research. Meanwhile, EUR corporate issuance is expected to surge to €400 billion in 2025 according to market forecasts, intensifying competition for yields and potentially depressing returns. For income investors, this environment demands a pragmatic approach: high yields must be supported by stable NAVs and robust credit fundamentals-areas where NRO falls short.

Conclusion: A Case for Divestment

NRO's combination of NAV erosion, unsustainable yield, and structural weaknesses makes it a risky proposition for income investors. While the fund's 11.6% yield appears attractive on the surface, its reliance on leverage and exposure to volatile real estate markets undermine long-term stability. In a landscape where sustainable funds and EM corporates are outperforming, NRO's underperformance is not a temporary setback but a symptom of deeper flaws. Investors would be wise to divest or avoid NRO, reallocating capital to strategies with stronger fundamentals and clearer alignment with macroeconomic realities.