General American Investors (GAM) was formed in February 1927. GAM uses fundamental security analysis to manage its portfolio and seeks long-term capital appreciation through investment in companies with above average growth potential.
The fund has issued a preferred stock, which offers effective leverage to the common shareholders of about 17%.
This is the investment breakdown as of Sept. 30, 2011:
Overall Investment Breakdown
General Equity | 94.6% |
Debt- short-term | 4.9% |
Other | 0.5% |
GAM has a good long-term NAV performance record, but has suffered somewhat in recent years. One reason for this is because the preferred stock has a fixed interest rate of 5.95%. This is much more expensive than the variable rate leverage financing used by some other closed-end funds. Of course, the locked-in fixed income rate of the preferred may benefit GAM at some point in the future if/when short-term interest rates ever begin to rise.
Total Return GAM (NAV) S&P 500
15 Years | 9.53% | 5.59% |
10 Years | 3.61% | 3.22% |
5 Years | -0.36% | 0.30% |
3 Years | 14.32% | 13.10% |
1 Year | 2.44% | 4.98% |
Here is the yearly total return NAV performance record since 2001:
NAV Performance
2001 | -1.49% |
2002 | -22.98% |
2003 | 27.42% |
2004 | 10.75% |
2005 | 16.97% |
2006 | 12.87% |
2007 | 9.43% |
2008 | -42.10% |
2009 | 30.81% |
2010 | 15.47% |
YTD | -1.99% |
Largest Industry sectors (as of 9/30/2011)
Finance/Insurance | 26.9% |
Retail Trade | 19.6% |
Consumer Products and Services | 13.4% |
Oil and Natural Gas | 11.0% |
Computer Software and Systems | 9.5% |
Communications and Information Services | 7.1% |
10 Largest Investment Holdings
The TJX Companies | 10.5% |
Qualcomm (QCOM) | 4.3% |
Costco Wholesale (COST) | 4.1% |
Arch Capital Group (ACGL) | 3.6% |
Republic Services (RSG) | 3.4% |
Diageo plc ADR (DEO) | 3.3% |
Weatherford Intl. (WFT) | 3.1% |
Nestle S.A. (NSRGY.PK) | 3.1% |
Apache Corp (APA) | 3.0% |
Halliburton (HAL) | 2.9% |
GAM is run by Spencer Davidson who has more than 40 years experience in the investment industry. Davidson was a member of the 1966 graduating class of Columbia University’s MBA program, which produced several famous hedge fund and mutual fund managers - Mario Gabelli, Art Samberg and Leon Cooperman.
Here are some summary statistics on GAM:
General American Investors
- Total Net Assets: 1,123.3 Million
- Total Common Assets: 933.2 Million
- Annual Distribution (Market) Rate= 3.47%
- Last Distribution= $0.50 (year-end 2011)
- Fund Expense ratio: 1.43% Discount to NAV= -16.4%
- Portfolio Turnover rate: 14%
- Effective Leverage: 16.92%
- Average Daily Volume (shares)= 42,000
- Average Dollar Volume = $1.1 Million
GAM is currently selling at a discount to NAV of -16.4% compared to the 6 month average discount of -14.14%. Here are the Z-statistics for the current discount to NAV:
1-year Z-Statistic = -2.54
6-month Z-Statistic = -2.19
3-month Z-statistic = -1.50
Using these Z-statistics, the current discount to NAV is anywhere from 1.5 to 2.5 standard deviations below the mean.
GAM has only average liquidity and you need to be careful with large purchases. It usually trades with a bid-asked spread between three and five cents.
GAM is attractively priced at current levels with the discount to net asset value above 15%. The top portfolio holdings are solid companies that should hold up well in the weak economy we are experiencing now.
Two negatives are the fairly high expense ratio and high cost of leverage, but I think the attractive discount compensates for these. GAM has a low turnover rate with fairly low distributions, so it can be a decent holding for a taxable account. I would consider lightening up on the position if/when the discount to NAV dropped below 12%.
Disclosure: I am long GAM.
