The below text is licensed to Covestor Ltd. (“Covestor”), by Dan Plettner. Such text may be disseminated only by Covestor. Dan Plettner invests and receives income for securities research, including “buy-side” research. Dan licenses his own real time trading data to Covestor Ltd. (“Covestor”). Covestor is a Registered Investment Advisor that uses Dan Plettner’s data to create the Core, Long Short Opportunistic, Tax Advantaged Income, and Taxable Income models for its clients. Dan’s words should not be misconstrued as investment advice.
Dan Plettner owns RNP, RQI and DVM and UTF in his Covestor Core and Taxable Income models.
September 16, 2010: On the evening of September 15th, Cohen & Steers announced adopting a level rate distribution policy, and declared third quarter distributions for its affected Closed-End Funds. I perceive this news most relevant to Cohen & Steers Infrastructure Fund (UTF, a pre-existing position in the Core model), Cohen & Steers REIT and Preferred Income Fund (RNP, a pre-existing position in the Core model), Cohen & Steers Dividend Majors Fund (DVM, since added to the Core model), and Cohen & Steers Quality Income Realty Fund (RQI, newly added to the Taxable Income model).
In observing RQI, the $7.85 closing market price on September 16th (the day after the press release) represented a 14.77% discount to then current $9.21 published Net Asset Value (“NAV”). CEF Connect
The account I manage (which I license to Covestor’s Taxable Income model) already holds several Closed-End Funds that focus on Bonds as well as directly holding Exchange-Traded Preferreds or Bonds. In managing this account, I desire constituent holdings that do not all offer the same traditional static or fixed income, but a diversified set of securities that provide sometimes fixed and sometimes dynamic yield not confined to being be tax-advantaged.
I am cognizant of Interest Rate risk. Therefore, I am especially eager to compliment fixed income securities with other securities whose yield is dynamic. Or among Closed-End Funds, choosing some whose underlying holding’s have similarly dynamic yield. There are many types of risks that I choose to be mindful of. And, in choosing the constituents for any account I don’t want all the securities to be subject to the exact same primary risk. Obviously, I want to manage my risks within any one style bias account, and I more broadly want diversification among style-biases in having different style-bias accounts.
I found the discount in RQI as attractive to attain the complimentary exposure of RQI’s underlying holdings relative to broader alternatives, many of which have not merited any serious consideration. More importantly, the distribution change in RQI is relevant to my security selection thesis. If the marketplace demand for shares of Closed-End Cohen & Steers Quality Income Realty Fund shares, and supply does not grow, I believe RQI’s discount may shrink. In my experience, choosing a Closed-End Fund at a discount is primarily beneficial if that discount shrinks. I do not believe that the shrinking or the painful widening of Closed-End Fund discounts is random.
