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LMP Real Estate Income Fund Inc Message Board

  • david_schere david_schere Dec 13, 2007 9:00 AM Flag

    Using srs and rit

    I am using srs and rit together. I want to accumulate shares of rit on the way down while using srs to protect capital. RIT and SRS are highly correlated. So I plan to peridoically take profit from srs and buy rit.

    My ideal balance is 1.5 shares of rit per 1 share of srs.

    As srs appreciates proceeds will be reallocated to rit, so I am using the bear market in this space as an engine to collect shares in rit. Also by doing so I am reverse dollar cost averaging in srs so when the market does turn most profit from srs will have been reinvested in srs.

    The hard part is dealing with the possibility of a 'death drop' in rit. SRS should buffer most of the losses. In any case rit would have to go down 25% faster than the dow reit index plus its dividend in order to make me loose money.

    The goal is to secure a massive long term position in rit that allows me to get high income without risk to price.

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    • Could anyone tell me why the market is letting this pay a 16% dividend? I realize the underlying common stock this fund holds is down but we are still seeing a high dividend yeild. Will the dividend be reduced some time this year?
      Long 600 and looking to buy more but I'm not sure if this is a smart idea. Any thoughts?

    • According to etfconnect vnq's yield is now at 6%. Mixing it with rit trades yield cor inverse correlation with srs which I want to use as an umbrella to weather the storm.

    • Thanks for the tip on I will check them out. I have used Yahoo charts quite a bit for simple quick and dirty comparisions and that works ok.

      However, this all assumes you know ahead of time what two or 3 symbols to compare. It would be nice to be able to do massive comparisons of all 10,000 or such symbols on the U.S. and even foreign markets against each other. Given the right data and program, I would think even a cheap PC could do such computation somewhat quickly (hours or days).

    • Thanks everyone for making this RIT message board fun after not really hearing any news on RIT for years! I do hope that all of you also have a great Christmas and holiday season.

      I do have to ask though, what you would accomplish by buying VNQ. If the div yield is that low, with the dilution of buying the inverse index (of any flavor), you would be diluting your yield by at least 33%. That would bring your effective yield down in the 4 range depending on how you do it. If we are talking about 4-5% yeilds, then there are probably less risky ways to get the same yield. Now if you are talking about price appreciation too in the months/years to come, that is a different story. Is that what you are anticipating?

      Again, thanks everyone.

    • Best wishes to you and your family this holiday. Thanks for the info.

      Everything in this dufus stock market, in my opinion, is really is subjective. The correlation was just something that I choose, I don't think there is a way to be objective about it.

      But I think I am going to diversify into vnq and then use proceeds from srs to buy back rit, nro and other funds slowly during the course of the year. VNQ has its div/yld up to 6% according to etfconnect.

      I would be sacrificing yield for safety which given the current business climate I think would be warranted.

    • I assume by "subjective" you mean a plot does not give you a single number that a CoC does. However, if you plot a comparison chart the lines are real numbers, % delta from plot inception, and are not subjective.

      Unless the data arrays in a CoC are correlated exactly -1 or 0 or +1, the resultant CoC will vary with the time chosen - a subjective element. The same thing happens, BTW, with the time chosen for a plot.

      If you were looking for a stock negatively correlated to some other, what number would you choose between 0 and -1 that satisfied you? And how would your choice of that number not be subjective?

      I once questioned IBD founder William O'Neil about his 7% sell rule asking him how he chose it. His response in effect was; "That's my number and I'm going to stick to it - down 7% and I sell no matter what." I note that some time after that IBD started to say down 7%-8% is the point where you sell no matter what.

      It looks objective because he sticks to it - but the choice, even if based on years of experience and observation, is, IMHO, quite subjective.

      All of this is just academic twiddling, however.

      Re RIT; all of these REIT funds (RNP,RPF,NRI, NRO RFI, etc) seem to hold just about the same REITS in their portfolios so if you sell RIT, which I am about to do as well, you've got to find a new park to play in. I can tell you it isn't muni CEFs and I don't think it's going to be Floating Rate. Maybe covered call funds.

    • The problem is that plotting them is subjective.

      Today is probably the last day I can hold rit without
      exiting. It appears to be forming a death drop.

    • Nothing is going to correlate perfectly. I think we all have to remember that in the long run there is going to be a close correlation (with what a 3% factor of being off per your calculations). The downside is the risk you have already mentioned namely a complete meltdown of RIT and the cut in dividends. I still like the strategy. What kind of program are you using to do the correlations? I have done that manually and want to start doing more of it automatically. That means getting access to end of day data as well. I just have not wanted to spend the $20 or $30/month for the data!!

    • I have been trying to use the same method, srs does not track rit that well. SRS is the Dow Realestate tracker, while i think people are scared of RIT's dividend being cut, so it seems to be a dividend play. I have only been doing this for 2 days, and it is painful to be losing on both at the same time..good luck ed

      • 1 Reply to eroworthjr
      • It has tracked the inverse of srs well up until two days ago.
        I would expect to see rit outperform the dow reit index on the next rally.

        If not I could use the same method substituting iyr or some other etf for rit. I want the dividend though, but I see the same risk that you do that they'll have to cut the dividend.
        On the other hand they invest in convertibles and debt obligations that should make the yield more durable.

        I expect to see rit rally really soon. If that rally doesn't
        beat the ^djr then I'll exit rit and look for another strategy.

    • Update: So far so good. SRS has negated all loses, in fact it has offset losses in rit by 2% last week.

      I should rebalance (buy rit, sell srs) to bring it back to my target.

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