SABA's Distribution: A Closer Look at the Numbers

As an investor, it's crucial to stay informed about the companies in your portfolio, especially when it comes to their distributions. Saba Capital Income & Opportunities Fund II (NYSE: SABA) recently announced its monthly distribution details for February 28, 2025, and it's essential to analyze the numbers to understand the fund's performance and sustainability.



The fund will distribute $0.058 per share, with 50.79% ($0.02946) coming from net investment income and 49.21% ($0.02854) as return of capital. For the fiscal year 2025 to date, distributions included 40.29% from net investment income and 59.71% return of capital.

The high proportion of return of capital in SABA's distributions is a red flag that warrants careful scrutiny. This component represents a return of the original investment, not income earned from investments. This pattern typically indicates either poor underlying performance or an unsustainable distribution policy. As the fund's distribution notice states, "The Fund estimates that it has distributed more than its income and net realized capital gains; therefore, a portion of the Fund’s distribution to shareholders may be a return of capital."



The fund's modest cumulative total return of 5.56% through November 30, 2024, and high annualized distribution rate of 7.28% raise concerns about the fund's long-term sustainability. The disparity between return and distribution rate signals potential long-term sustainability issues, as the fund may be relying on capital appreciation to maintain its distribution level, which is not sustainable in the long run.

SABA's investment strategy in high-risk areas such as SPACs, reinsurance, and derivatives further amplifies these concerns. These investments can be volatile and may not always provide the expected returns. The fund's risk profile, high proportion of return of capital in distributions, and reliance on capital appreciation to maintain distributions warrant careful scrutiny.

Investors should monitor SABA's progress closely and consider the potential risks and rewards associated with its high-risk investment strategy. It's essential to stay informed about the fund's distributions and performance to make well-informed investment decisions. By understanding the fund's distribution breakdown and the underlying risks, investors can better assess the fund's suitability for their portfolio and make adjustments as needed.