Joe Eqcome

CEF Weekly Review: Ping Pong, Anyone?

In the final analysis the shareholders own the companies in which they invest and should be operated for their benefit. For concerned shareholders not to agitate for a higher valuation is a dereliction of their rights. (Not everyone trades this stock on price variations. In fact, most of the shareholders are probably “buy and hold”.)

Shareholders need to continue to legitimately challenge management to seek demonstrable ways of adding value, or outside influences (raiders) will bring to bear that challenge by removing management in favor of their own interest and that interest may not be aligned with the remaining shareholders’ interest.

I believe not enough pressure is being placed on ADX’s management to close its persistent 12%-15% discount in a portfolio of highly-liquid large cap securities.

Shareholders should seek a resolution for ADX for a trigger mechanism that after a certain time period if the discount remains at 10% (or another legitimate discount) ADX should institute a in-kind tender offer, much like Tri-Continental, so shareholders can at least realize some of the discount in the secondary markets.

I believe a fear of a loss of management fees and potentially a loss of management's jobs would place a new urgency on focusing on getting the value up from this persistent, dismal discount. Let me also note there’s been paltry insider buying by management in ADX. So, apparently, they agree that the discount will persist in the future.

This doesn’t have to necessarily end up in the liquidation of ADX; it could end up in higher valuation for the shareholders and ADX remaining a closed-end fund.

That would make us all happy.
On Nov 08 08:25 PM jse17 wrote:

> “Joe, Leave ADX Alone!”
>
> As mentioned in response to your earlier “attack” on ADX, its P/D
> figures generally correspond to and are often better than similarly
> positioned CEFs. Additionally, as the previous poster mentions, the
> fund’s management is solid if not spectacular. Moreover, it does
> not require a finance Nobel Laureate to formulate a buy/sell protocol
> on this or any CEF.
>
> In the end, all cancers commit volitional suicide by consuming their
> afflicted host! Opening all CEFs is analogous in character!

CEF Weekly Review: A Good Scare

I believe a CEF must pay out its net investment income (NII) and capital gains annually or pay an excise tax if they do not have offsetting losses.

Currently, BIF has $.01 per share in undistributed net investment income losses. For the first 6 months (5/31/09) BIF net investment income per share was break even. Depending on its net investment income for the 2nd half, it may pay a distribution in December. I would be suprised if they reinstated a managed distribution policy.

DNY has approximately $.16 per share in undistributed net investment income.


On Nov 01 03:16 PM Jonquil wrote:

> Is there any indication when BIF and/or DNY will resume paying dividends?

CEF Weekly Review: A Good Scare

I agree with most of your points. (Its weighted alpha is 19.0 versus a CEF market segment average of 43. Yes, you’re paying a fee on PEO; but you’re also getting it at an 11.1% discount.) However, the attraction here is the narrowing of the discount through activist intervention.

Earlier this year I authored an article entitled “The Case for Tender, Liquidation or Conversion of ADX” joeeqcome.web.officeli.... ADX’s discount at that time had an average monthly discount of 13.4% since the end of 2003. My case was essentially the discount has been persistently and unreasonably larger and ADX's board should do more than occasionally buy back some of its stock. It should consider a liquidation or conversion to an open-ended fund (mutual fund or managed ETF) to maximize shareholder value.

I believe the large discount is the attraction to the stock and it will become increasingly difficult for ADX to prevent an activist investor from at least attempting to close the discount in the next 12 months.

I also hyper-linking a study entitled “Activist Arbitrage: A Study of Open-Ending Attempts of Closed-End Funds”. finance.wharton.upenn.edu/~itayg/Files/cefactiv... A key variable in guiding activist arbitrageur is the fund’s discount from its NAV. There empirical results suggest that a one percentage point increase in the discount is associated with a 0.66 percentage increase in the probability of an attack in a given year.

Following an attack by an activist arbitrageur, the discount shrinks or disappears if the fund is open-ended, so that overall activist arbitrage is found to have a substantial effect on CEF discounts.

I believe ADX is as good a target for an active arbitrage as any other CEF candidate. Whether it will take place is speculative. But if you play by the numbers, the odds are favorable.

Anyhow, I’m being paid to wait. It clearly not an stock for everyone.

Joe Eqcome

On Nov 01 10:55 AM frogmatic wrote:

> ADX seems to trade at a permanent discount of around 15%; their long-term
> alpha is indistinguishable from zero; and its energy "exposure" is
> only 11% of the portfolio (compare to 21% consumer and 13% financials).
> Not to mention you're paying for two levels of management fees for
> the position in PEO. I'm not sure what the attraction would be relative
> to, say, an straight investment in SPY.

Profiting with a Dividend Avoidance Strategy

A clever observation. Thanks

Joe Eqcome