Adams Express: A Cheap Closed-End Fund

Adams Express (ADX) is a closed end fund that can be used a good substitute for an S&P 500 Index fund. It seems very attractive at $12 or less. Here are some good features of ADX:

1. Low expense ratio: The annual expense ratio of 0.44% is one of the lowest for a closed end fund.
2. Low turnover: The ADX management does very little trading (low turnover ratio) which means that the "hidden" trading costs are also very low.
3. Good long term performance: Since inception in 1979, the fund has averaged about 12% per year.
4. High discount to NAV: ADX has been trading at a 14% discount to NAV which is at the higher end of its discount range. About 8% of the ADX portfolio is invested in PEO, which is another low expense closed end fund that trades at a discount of 12%. So on the PEO holding you actually get to buy it at a "double discount".
5. Solid portfolio holdings: Its top stock holdings are: Schlumberger (SLB), General Electric (GE), Microsoft (MSFT), Conoco Phillips (COP) and Oracle (ORCL).

Full Disclosure: I am long shares of ADX.

Comments

[veeblefetzer:]

Since ADX is a closed-end fund, there's no guarantee that it's price will have any relationship to the price of the underlying securities it owns or to the S&P 500. And since it also has a very low dividend yield, what reasons are there for people to want to buy it?

2008 Aug 19 08:57 AM

[beabaggage:]

ADX also does stock buybacks from time to time, so it buys back it's own assets at a discount. A much better play than a low cost S&P 500 ETF or say SSO with a dividend reinvestment plan etc. PEO does the same, low cost/dividends/cap gains reinv, and stock buybacks. Managed way to play/cost average/into energy. Good feature comments on a great hidden value!!

2008 Aug 19 10:00 AM

[Xyrus:]

A much better play? ADX has significantly underperformed the S&P over the long term. PEO has only recently caught up with the S&P. Both are more expensive than a simple ETF.

~X~

2008 Aug 19 02:57 PM

[Adamse:]

Disclaimer - I work at ADX.

Re. Comment from veeblefetzer - While ADX's dividend payout is similar to the S & P's dividend yield, you also have to factor in the capital gains that the Fund pays out. Combining both the dividends and capital gains, ADX's annual rate of distribution for 2007 was 7.15%, and has averaged 7.45% a year over the last 10 years.

Re. Comment from Xyrus - Actually, ADX's NAV total return has outperformed the S & P on a five and ten year basis, as of June 30, 2008. Go to its website: adamsexpress.com and click on the At-A-Glance.

2008 Aug 20 11:35 AM

[quality:]

I appreciate the disclaimer note of Adamse, but I questioned the chart posted on the Adams Express website for the 5 yr performance history of ADX and the S & P 500 figure as well for that matter although the posted S & P 500 value is close enough to the SPY results to be possibly correct. The 5 yr chart on the Adams site for the S & P 500 shows a total annualized return of 7.6% through 6/30/08 yet the SPY showsannual return of only 7.42%.. There of course is some drag but I thought that a little high as the operating charges for SPY are soo modest. Still all and all they are close enough for Gvt work.

But the #s for ADX are way off. There is no way that the NAV return for ADX has exceeded even the SPY results let alone the index itself. The NAV return for ADX has averaged only 6.75% per year for the 5 years since 6/30/03.

Doing the #s there were dist/divs of $4.44 over 5 years on an intitial NAV of 13.06 with a close NAV on 6/30/08 of only $13.74. No way does that add up to an 8% compound annual rate. To get an 8% return in 5 years NAV would have had to rise to $19.18, less the effect of div compounding, or ADX would had to pay out $5.20 plus in divs/dist over the 5 years or some combination in-between to get to an 8% return.

Only if the chart took the NAV div and then blended into at market discount and then valued the principal at NAV might one calc the higher 8% figure, but that's not possible as the principal would have to valued at mkt if your reupping at mkt. Incidentally the mkt return on ADX was less than the NAV return, because the discount increased from 03 to 08 from 9.6% to 13.1%. That could mean mkt returns will be better for the next 5 years but it definitely hurt mkt returns for the past 5 years.

2008 Sep 01 03:31 PM

[quality:]

In looking deeper at the situatin I discovered I had not included a few small divis in the calculation of the total NAV return for ADX. Turns out the 5 year compound NAV return is 7.07% when those corrections were made. Still short of the S & P 500 index and even the SPY's performance but somewhat better nonetheless.

2008 Sep 01 04:46 PM

[staria:]

It's very simple. If you can by something with value of 100 for 85, do it. Better, take credit and by a lot of it, It's a byuers market right now, a lot of fear in the air, a lot of weak hands.... This is the time to make money. ADX is may be one of the the best buy-stories right now. Look also at GAM

2008 Sep 17 05:16 PM