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Brett Samaha
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Brett is an independent trader who specializes in closed-end fund investing, an area he believes is the most inefficient part of the securities markets. He also takes long/short positions in companies he believes to be extremely under/over valued. Brett is fascinated with the way investors... More
  • Cornerstone Progressive Return Fund may pull back after Rights Offer 0 comments
    Mar 25, 2011 10:53 AM | about stocks: CFP
    The Cornerstone Progressive Return Fund (NYSEMKT:CFP) is a closed-end fund (NYSEMKT:CEF) which invests primarily in other CEFs.  It historically has traded at a 30% premium to NAV (possibly because of their managed distribution policy that returns capital to investors every month), but recently has been trading at about 50% premium to NAV.  It appears that investors are trying to get involved in the rights offering that CFP will offer to shareholders on April 1.  Investors will be given 1 right for every share they own, and every three rights will enable them to buy 1 share of the fund for the greater of 102% of NAV or 90% of the market price. 
    CFP currently trades at 8.40 so if one owns 100 shares at 8.40 and they elect to exercise their rights, they will have 100 shares @ 8.40 and 33 shares at the market price on April 1 times 0.9.  If CFP closes at 8.40 on April 1, then shareholders will recieve their shares for 8.40*0.9 or 7.56.  This results in an average price of 8.19 which is a 46% premium to their most recent NAV of 5.60. 
    If one believes that the premium to NAV will return to the average of 30% after the rights offer, then the price should drop to about 5.60* (1.3) or 7.28. 
    If shorting illiquid, hard-to-borrow CEFs is appealing to an investor, then there appears to be about $0.91 profit in shorting CFP with very little downside risk.    

    Disclosure:  I currently have no position in CFP, but may short some shares if the price continues to rise.
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