RHelios Multi-Sector High Income Fund (NYSE:HMH)

MaelstromESI (76.70) Submitted: 4/6/2008 4:36:17 PM : Start Price: $1.74 HMH Score: +202.96

- Regions Morgan Keegan Multi-Sector High Income CEF -

RHY is a relatively risky closed end bond fun run by Jim Kelsoe. Fortune, however, favors the bold.

RHY is currently beaten down to 52 week low levels, in part because of their portfolio, in part because the market is currently scared. To compensate you for your tolerance of risk, RHY is currently paying out a nearly 30% yield, which is distributed monthly.

When RHY announces their monthly dividend, they do it in three month shots. You'll know
that there are distributions in line for at least a quarter of a year as well as what the ex-div dates will be. To me, that mitigates the risk of the stock price declining -- if it does, you'll know you can load up at a discount and get an even better yield for the next month or two.

As I mentioned, their portfolio carries risk:

Investment Grade ABS - 7.0%
Below/Unrated ABS - 20%
Investment Grade Corp. Bonds - 11.2%
Below/Unrated Corp. Bonds - 59.9%
Investment Grade MBS - 20.4%
Below/Unrated MBS - 11.6%
Common Stocks - 9.9%
Preferred Stocks - 2.8%
EuroDollar Time Deposits - 4.1%
146.9% (46.9 Leveraged)

The riskiest elements, in my opinion, are the MBS and ABS which are full of written-down CDOs. However, that's also where some of the room for Capital Appreciation lies. Everything with an acronym is being written-down to near worthless levels, when in fact many of those MBS and ABS are going to continue their revenue streams for the company. Write-UPS can happen just as well as write-downs can. The write-downs and risky portfolio has caused a massive hit to their NAV (Net Asset Value). However, since this is a Closed-End Bond, there is a much lower risk of a 'run on the brokerage' like Bear Stearns, for anyone worried about the 46.9% leverage.. These CE Bond Funds have almost no redemption features that would force them into liquidation in order to satisfy margin calls. Compare 1 to .47 leverage of RHY to the 1 to 32 times leverage that Bear Stearns had. Note the decimal point on RHY.

Currently, as I'm sure you see if you do your DD on this stock, there are pending and open class action lawsuits being brought against RMK, claiming that their portfolio is overweight in real estate and is not as diversified as they had claimed. While the suit may gain some traction, I believe that their portfolio IS pretty diverse. Their corporate bonds and common/preferred stocks are spread over the following sectors:

Finance,Industrials/Manufacturing, Oil&Natural Gas, Paper Products, Garden Products, Building and Construction, Communications, Consulting, Entertainment (Casino and Six Flags), Retail, Telecommunications and Tobacco.

Clearly there is trepidation in the general market sentiment towards a number of those sectors, which is currently depressing their NAV and current return on investments.

Jim Kelsoe is a very seasoned manager and even puts out a monthly letter to the shareholders, much like Warren Buffet does in his 10ks.

While I don't see this hitting it's 52 week highs any time soon ($15) I do believe there is a good chance it will be a $8-$10 dollar stock, with a continuing yield that will lead the bold to great fortune. Remember to reinvest your dividends!