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Also see this post for more info:
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Will some leveraged CEFs be forced to reduce leverage?
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lowriskincome
09-23-2008, 7:11 PM | Post #2565836
After reading that post, how will CEFs with preferred leverage raise cash to
liquidate the preferreds other than by selling their investments? That puts the CEFs in a bad position. The market for ARPS has disappeared, which
has both raised the rates that CEFs must pay on ARPS at the same time that the
market crash has made it difficult or impossible to raise the capital to redeem them by other
means. Unless I’m mistaken, this
scenario has put leveraged CEF investors in a dangerous position whereas they
thought they were in safe investments.
The REIT ETFs such as RWR and VNQ haven’t suffered the crashes that the
CEFs have because of the lack of ARPS leverage in the ETFs. The sky high distribution rates after the crash of the CEFs is a
red flag that the market recognizes a danger with the CEFs. Another danger message from the market is
that the ETFs and the underlying securities gained on a day when the CEFs
closed in the red again.
