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Cohen & Steers Quality Income R Message Board

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  • whymechi whymechi May 20, 2011 4:38 PM Flag

    interst hikes

    This has been bothering me too. As rates rise bonds will be a more competative option for those seeking income also, RQI's cost of money will rise. I think this will outstrip any rise in the value of thier real estate assets which will lag inflation, at least for a time.

    IMHO when QE 2 ends next month bond rates will most likley rise. But if the Fed fund rate stays at current (very low) levels we may still be OK. On this I would be happy to hear other opinions because I am not at all of certain this logic.

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    • If rates rise, I think the price of RQI will take a hit for 3 reasons;
      - If rates are raised the entire market will swoon. RQI is in the market, it will swoon to regardless of anything else - everything will be hit.
      - The value of RQI is in it’s portfolio. The price of the holdings will be hit by the general market swoon, thus the NAV of RQI will take a hit.
      - Cohen & Steers borrows money for the leveraged portion of RQI. Increasing rates will affect the net cost of that leverage, which means even more ROC to support the RQI distribution, which makes the fund less desirable, which will affect price.

      The 3 effects may be coupled, but I expect RQI to react more negatively to a rate rise than a non-financial stock, or an unleveraged closed end fund, or a mutual fund. I'm often wrong.

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