Denali Fund: Still Interesting

| About: Boulder Growth (BIF)

The Denali Fund is traded on the New York Stock Exchange under the symbol DNY. I have written about it before and still like it. DNY is controlled by the Horejsi family who own 76.9% of the outstanding shares. This is not a balanced portfolio but it is very interesting.

DNY continues to sell at a large discount from net asset value. As of January 6, 2013, this discount was 20.80% which is not warranted by the assets in their portfolio. Large discounts have continued for all the funds controlled by the Horejsi family including Denali, First Opportunity and the two Boulder Funds. Part of the reason for these large discounts is the nature of the securities contained in the portfolio. There is no coherent portfolio strategy in any of the funds and the investments appear totally opportunistic. DNY buys securities which it believes will appreciate and I am fine with that.

Performance has been fair. It is as follows:

1 year 3 year 5 year since October 2007
Net Asset Value 17.1% 12.7% 1.7% 1.7%
Market Value 16.4 11.9 0.7 0.7
S & P 500 15.2 13.2 0.4 0.4
DJIA 12.5 13.4 1.6 1.6
NASDAQ 12.3 14.6 1.9 1.9
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As of October 31, 2012, DNY had gross assets of $105,010,080 of which $21,950,808 was leveraged with auction preferred shares, leaving net assets of $83,059,272. Only 3.6% of gross assets are in money market funds. Its ten largest holdings are as follows:

Berkshire Hathaway 22.1%
Real Estate Investment Trusts 16.4
Ithan Creek Partners 11.3
Closed End Investment Companies 6.7
Johnson & Johnson 5.8
Auction Preferreds of Closed End Funds 4.7
JP Morgan Chase 4.4
Cisco 4.0
Freeport McMoran Copper & Gold 4.0
Wells Fargo 3.9
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The investment in REITs consists primarily of Veritas, Inc. of which I have no knowledge; Ithan Creek is a hedge fund which seems to have performed moderately well. The closed end investment companies consist primarily of Cohen & Steers Infrastructure Fund which seems fine. The auction preferreds are in Advent Claymore Covertible Securities and in Gabelli Dividend & Income which seem secure.

Bear in mind that almost 50% of the portfolio consists of only 3 different securities. Although I know little about Ithan Creek or Veritas, I am comfortable with Berkshire Hathaway (NYSE:BRK.A). Remember, you are buying all this at a 20% discount from net asset value. In the past 4 years, the investment in the hedge fund has appreciated by almost 50% which is not bad. Many of the portfolio holdings are fairly mundane and are worthy investments.

As of October 31, 2012, DNY had undistributed ordinary income, accumulated capital gains and unrealized appreciation of $28,216,354. This represents 25% of gross assets and 1/3 of net assets. DNY is holding on to its winners.

Over the past five years, DNY has had modest portfolio turnover, little income and reasonable operating expenses, considering the cost of leverage. These figures are as follows:

Operating Expenses Net Income Portfolio Turnover
2012 2.41% 0.42% 15%
2011 2.64 0.51 7
2010 2.80 0.38 7
2009 3.30 0.51 25
2008 1.77 1.98 91
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DNY is not a particularly liquid investment, in light of most of its shares being owned by one family and its relatively small size. This lack of liquidity may also be contributing to the large discount. I have always liked it and am willing to bet with managers who put their money where their mouths are by having a meaningful investment in the fund. The investments are opportunistic and eclectic and this is not meant to be a balanced portfolio for anyone. It is most definitely worth looking into.

It should be noted that little has changed since my last article on DNY in Seeking Alpha. In a world obsessed with annual and quarterly performance, DNY might appear as a poor choice. One can never know when its opportunistic strategy will outperform the market. I am content to sit on a bundle of assets, which appear worthwhile, and which are purchased at a discount. I am prepared to put my money with the controlling family's money, at a 20% discount. Not all your money should be in DNY but it should constitute part of a basket of closed end funds, which other an interesting portfolio of diverse investments, at a discount.

Disclosure: I am long DNY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.