RNP Edges Out RQI in Risk-Adjusted Returns: A Prudent Choice for Income Investors in Volatile Markets

In an era marked by fluctuating interest rates and market volatility, income-focused investors are increasingly prioritizing risk-adjusted returns and portfolio stability. Two funds managed by Cohen & Steers—Quality Income Realty Fund (RQI) and REIT and Preferred Income Fund (RNP)—offer exposure to real estate investments but diverge meaningfully in their risk profiles. As of July 2025, RNP emerges as the superior option for investors seeking to optimize returns while minimizing downside risk, despite a lingering correlation between the two. Here's why RNP deserves a closer look.

Performance: RNP Leads in Volatile Markets

While both funds have delivered strong long-term returns—RNP's 10-year annualized return of 11.39% versus RQI's 11.11%—RNP has outperformed in shorter-term metrics. Year-to-date (YTD) through July 2025, RNP gained 13.74%, nearly doubling RQI's 6.54% return. This performance gap is even more striking given RQI's slight edge in 2024's 10-year returns.

Risk Management: RNP's Sharper Edge

RNP's advantage becomes clearer when examining risk-adjusted metrics:
- Sharpe Ratio: RNP's 0.98 versus RQI's 0.77 (July 2025) reflects its superior return-per-unit-of-risk.
- Sortino Ratio: RNP's 1.47 versus RQI's 1.15 underscores its better downside risk management.
- Volatility: RNP's daily standard deviation of 19.15% is significantly lower than RQI's 21.01%, reducing exposure to sudden market swings.

Drawdowns and Resilience

RNP's stability is further validated by its minimal -0.22% current drawdown versus RQI's -8.16%—a stark contrast that highlights RQI's recent struggles. While both funds faced historic drawdowns (RQI's worst at -91.64% vs. RNP's -87.10%), RNP's current resilience aligns with its risk-mitigation strategy.

Correlation: A Moderate Link, Not a Perfect Pair

The funds' correlation coefficient of 0.54 as of July 2025—down from 0.75 in October 2024—suggests a moderate relationship. While this limits diversification benefits compared to uncorrelated assets, it also means RNP can still offer partial protection against RQI-specific risks. Investors seeking to reduce concentration should remain cautious, but RNP's standalone risk metrics still justify its selection over RQI.

Dividend Yield: A Narrow Gap, a Clear Choice

RQI edges slightly in dividend yield at 7.66% (TTM) versus RNP's 7.14%, but this 0.52% difference pales against RNP's 31% lower volatility and 27% better Sharpe ratio. For income investors, sacrificing a marginal yield for significantly reduced risk is a prudent trade-off in today's volatile environment.

The Bottom Line: Shift to RNP for Stability

The data is clear: RNP offers a superior risk-reward profile for income-focused portfolios. Its stronger risk-adjusted returns, lower volatility, and current drawdown resilience make it a safer bet amid market turbulence. While RQI's dividend yield is tempting, the cost of its higher risk—particularly in volatile environments—is too high to ignore.

Investors holding RQI should consider reallocating to RNP to capitalize on its resilience. With the Federal Reserve's rate hikes and geopolitical uncertainties lingering, prioritizing stability over incremental income is no longer optional—it's essential.

Act now to align your portfolio with the fund that's better equipped to weather today's markets.