Gabelli's Global Deal Fund: Finding Value in Turbulent Times

The Wall Street Journal recently posted an article on top performing mutual funds, highlighting the Gabelli ABC Fund (GACBX), a modified merger arbitrage strategy fund as the best YTD performer through March 31, 2009. This survey included 1,663 funds that had greater than $50 million in assets and is at least three years old.

We would like to highlight the Gabelli Global Deal Fund (GDL) also a similar modified merger arbitrage strategy and why we view GDL as a better investment relative to GABCX as well as an overall attractive investment opportunity. Here’s why...

1. GDL trades at a 22% discount to its Net Asset Value (NAV). GABCX trades at NAV.
2. Both GDL and GABCX currently maintain substantial cash positions, a primary driver for their out performance this year. GDL held 55.6% cash (GDL employs 22% leverage); GABCX held 30.1% cash as of 12/31/08. We do not expect cash levels to remain this high going forward
3. If roughly half of GDL’s position is in cash, we view that as the equivalent of owning the equity component at a 40% discount and holding deployable cash at NAV.
4. We like the merger arbitrage strategy for its substantially lower correlated returns yet long equity exposure. Both GABCX and GDL’s NAV have a beta of <.2.
5. Going forward, we expect the landscape for dealmaking to improve, thus providing ideal opportunities to employ GDL’s large cash position into attractive merger arb spreads.
6. GDL pays a quarterly dividend of $0.20, which equates to an annualized yield of 6.49%. The dividend was reduced from $0.40 per quarter at the end of 2008. We attribute the funds wide discount partially to its recent dividend reduction, despite it being a prudent decision in our view.

Overall, we view the ability to purchase high quality assets, a sensible equity strategy for the given environment run by a season professional at a discount of 22% to be an attractive investment for this volatile environment.

Disclosure: Relative Value Partners holds positions in GDL for its clients.

Comments

[joske:]

Indeed, I switched a little percentage of Bonds alloc to GDL. M&A Arbitrage is a great diversifier.

Apr 08 05:02 AM

[j'adoube:]

Guys-

Given that based on that GQ pic in the upper left you want to convey the look and feel of thorough professionals, you also may want to spell-check your copy (GACBX? No, GABCX), and still proofread (run by a "season" professional? Is her name Summer?).

Details are everything, guys. Otherwise, fine article and all good points. I look forward to more.

Apr 08 08:09 PM

[Longinvestor:]

Thanks for the GBL lead. Good article. Substance always beats style....but I suppose one's intern could download all of the world's ticker symbols into their word processor's dictionary.

Apr 09 11:13 AM

[j'adoube:]

LongInvestor-

Points taken, but notice they still haven't fixed the errors, two weeks later.

With the quality control they show in their posts, they don't encourage a whole lot of confidence in their attention to detail.

Apr 21 12:44 PM