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ARMOUR Residential REIT, Inc. Message Board

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  • smoothjazz0204 smoothjazz0204 May 6, 2011 6:17 AM Flag

    Other Reits----Question

    <Just an observation, but notice that all four classes of the Gabelli Utilities Fund pay VERY high proportions of their distributions in Return of Capital.>

    Yes that is true, but please note that there GOOD "Return of Capital" and BAD "Return of Capital.

    Examples of GOOD Return of Capital:

    1. Unrealized Capital Gains
    2. Option income strategies used by a lot of CEF ETFs
    3. Master limited partnership passthrough income

    A BAD Return of Capital is what ROC literally means: Investors are getting their own capital back. That is not good.

    I believe what has occurred at GABUX in recent years is the GOOD "Return of Capital" in that a significant number of their holdings have risen sharply over the past year with the general stock market, which has allowed them to pass at least some of these gains off as ROC so investors obtain the tax benefit.

    All things being equal, I would prefer ROC rather than ordinary income if it represents GOOD ROC because the tax advantages can be enormous depending on your tax bracket.

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