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Cohen & Steers Quality Income R Message Board

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  • dclewis12002 dclewis12002 Jun 13, 2011 1:08 PM Flag

    interst hikes

    I think you’ve missed a couple of points:

    1. Regarding getting ~5%, and that’s not so bad. Look, you can get 4+% just owning many REITs (e.g. KIM, VNO, CLI, O, etc), what’s the RQI leverage, that you’re paying for and running risks with, actually getting you? Maybe not much.

    2. The real issue isn’t the 5%, it’s the huge ROC component in your distribution. As long as the market is going up it’s fine to take some of what would otherwise wind up in the NAV and return it to shareholders as ROC, it just means RQI’s NAV will grow slower than it otherwise would. But in a down market when you return NAV you lose capability to generate NII when you sell holdings and return capital, so you’re in a degenerative cycle, and the leverage makes it worse, and the managed distribution policy keeps it worse. Example: if RQI doesn’t have enough NII to cover the quarterly distribution coming up, it sells some holdings to cover the difference - the reduced holdings reduce RQI’s ability to generate NII for the Sept quarterly distribution, and the cycle repeats with each time a little more worse. So things just spin in, unless the market turns up or the distribution gets cut to a realistic level. Because RQI has a managed distribution policy, history shows there will not be any cut until the crisis is over. This is not a hypothetical issue, it’s what happened; and there’s no reason to expect it won’t happen again, if the market continues it’s dismal performance. This is a systemic issue with any CEF that includes a large ROC in it’s distribution, and the leverage and managed distribution policy just makes it worse.

    FWIW, until things turn (Nov?), I’m out.