Tender Offer Opportunities Abound
CEFs, Dividend Growth Investing, Dividend Investing, ETF investing
Seeking Alpha Analyst Since 2011
I provide my work regularly to CEF/ETF Income Laboratory with articles that have an exclusivity period, this is noted in such articles. CEF/ETF Income Laboratory is a Marketplace Service provided by Stanford Chemist, right here on Seeking Alpha.
- There have been several tender offers that have gone through or are scheduled that have created several opportunities.
- Our Tactical Income- 100 portfolio is designed precisely for taking advantage of these special situations.
- There have been a couple of successes that are especially worth noting over recent history.
Tender offers create opportunities to capitalize on for deeply discounted funds. They can create some short-term profits for investors that are paying attention. This is the go-to move for most activists in the closed-end fund space for these quick profits and the general accretive nature of these deals.
Think of them like buybacks, but put in place all at once on a specific date. In this case, it would typically be the expiration date. At the CEF/ETF Income Laboratory we have a portfolio designed to take advantage of these very situations - among other corporate actions that CEFs can take. This portfolio would be our active and aggressive Tactical Income- 100 portfolio.
When these deals are announced, a fund's share price usually moves quite swiftly closing the discount present in a fund. This means that there might not be too much time to take advantage of these types of deals; unless you are screening these news events as we are at the Income Lab.
While the deals are accretive and can provide some quick profits, the main downside is that after the deal is closed and the dust settled, is that discounts can start to widen again. This doesn't happen every time, to be sure, but the post-expiry dip is the downside here.
One of these tender offers that we were able to take full advantage of was the recent offer with Western Asset Global High Income Fund Inc (EHI). This was an extraordinary deal where up to 50% of the outstanding shares were authorized for tender. They were purchased for 99.5% of NAV. They announced this several months prior to the actual event, but we were able to start seeing the price move in our favor due to discount tightening.
The reason this was such a beneficial offer is that we didn't have to worry about proration. This happened because investors that put up for tender 100% of their shares actually had 100% of their shares tendered at 99.5%.
This deal was also strange in that after the deal was over, we didn't see a dip but a massive shoot up in the price before settling lower several days later.
The next deal that we profited from handsomely was the recent Pioneer Floating Rate Trust (PHD). The TRADE ALERT can be viewed here. In this one, we didn't even have to wait for the deal. We held less than a month and after the announcement of their tender offer commencing, the discount contracted swiftly!
With that steep contraction, we swiftly took the profits before the tender offer even took place. For what it's worth, it is a generous offer for up to 50% of shares at 98.5% NAV. If it works out anyway like the EHI deal, one might not even have to worry about proration either - if they are still holding out for a couple of percentages of alpha. (We sold when there was around 1% of alpha left.)
This has resulted in where we are now after taking quick profits there, with Voya Prime Rate Trust (PPR). The TRADE ALERT can be viewed here for more details.
On the surface, it wouldn't appear to be as lucrative of a deal. With the announcement for 15% of outstanding shares at 99% of NAV. The kicker here is the anticipation of further tender offers in the future. A report with greater detail on PPR and the tender offer is exclusive to members of the CEF/ETF Income Laboratory right now!
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Stanford Chemist, Nick Ackerman, Alpha Male and Juan de la Hoz
Analyst's Disclosure: I am/we are long PPR.
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