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Renren Inc. Message Board

  • oldmanknows oldmanknows Mar 10, 2005 10:24 PM Flag

    Forbes says sell leveraged fixed income

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    • Oldman - do you know when this article came out?

      Thanks
      Rich

    • OMK,
      This is certainly food for thought. Hasn't Tug been saying this now for a while?
      Are there ANY CEFJ's that are NOT leveraged? (Anyone).
      regards,
      pe5k

      • 4 Replies to pe5k
      • All leverged funds are not the same so I would not avoid equity and municipal bond funds if they are at decent discount and duration of the muny fund is less than 4 or 5 years. The hedging of these funds by good managers like Nuveen and Claymore will help reduce losses and keep yield steady INHO.

      • and here i thought you were not reading posts carefully.....yes, for several mo's..

        have no idea why is just now getting to be part of news and other articles .....earlier could have allowed some exits at higher prices...

        would suspect reason for current touting of is the greater affect this has on the low yielding fixed incomes...ie. corporate investment grades will loose benefit of leverage well before junks (CEFJs)though still affects junks as well.....will not go into further detail as have in several prior posts.....

        this added to other articles (merril last week), could easily challenge CEFJ prices......increasing restlessness of heard as per many prior posts....

        and thanks, as always to OKM for bringing article to our attention....

        just opinions...tug

      • <<< Are there ANY CEFJ's that are NOT leveraged? (Anyone). >>>

        I can't give you a list of CEFs that are not leveraged but I can give you several CEFs that are leveraged and their debt is hedged via floating rate swaps with major banks. Check out any of the Cohen & Steers' CEFs. They are well managed and their debt is hedged. I own RNP and can give you some specifics on that fund but they are all operated the same.

        RNP has all of its debt hedged via floating rate swaps; i.e., their debt was borrowed at an average rate of about 3.5% fixed. They have entered into rate swap agreements with major banks for which they pay the fixed rate on their debt (about 3.5%) and receive a floating rate which resets monthly. As of 9/30/04 the average rate they were receiving was about 1.8%. I'm sure its gone up since then. I would think it has to be 2.5% or so by now. Their debt service payments are fixed through 2011 (the debt comes due in pieces starting in late 2006 through 2011) but what they receive via the swap agreements goes up as short rates rise. Thus, as interest rates rise their borrowing costs actually decline. I expect by the time the Fed is finished hiking rates, RNP will be receiving as much (possibly more) interest income from these swap agreements then it is paying out in interest.

        Cohen & Steers has hedged their debt via floating rate swaps on all of their leveraged CEFs. It is why they can announce their dividend payouts for 3 months at a time and why they have recently raised the dividend payout on 3 of their funds. Like most CEFs, all their funds are selling at a discount. RNP is now at a 7% discount and I bought it at a 10% discount.

        As CEFs they are still subject to the panic sell-offs that hit this sector from time to time but they always come back because the dividend is not going to get cut. In fact, it will likely increase because fund income is increasing and borrowing costs are decreasing. Also, the funds have significant unrealized gains from the appreciation of their holdings over the past few years. For example, as of the end of 2004 RNP had over $6/share in unrealized gains on its holdings. Of course, these gains can disappear if the market turns down. I like them because their cash flow is solid and thus, so is the dividend stream.

        Google Cohen & Steers and you can check out all of them. Good luck.

      • These JBCEFs aren't leveraged.
        BLW, HIO, LBC, MHY, PHK, PTM, RMH, HIF, CIK

 
RENN
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