NOTE–THIS ISSUE SHOULD NOT BE CONFUSED WITH THE GDL-C ISSUE FROM GABELLI WHICH THE INFAMOUS GRIDBIRD TALKS (TYPES) ABOUT. THAT ISSUE IS DIFFERENT FROM THIS ISSUE, BUT HAS SOME SIMILARITIES.
Leave it to Mario Gabelli and his team to come up with different varieties of preferred stock to raise cash for a closed end fund–in this case the closed end fund is the Gabelli Go Anywhere Fund (AMEX:GGO). As the name indicates the fund can own securities from any sector of the marketplace–stocks, bonds from any foreign and domestic issuers. The fund is about $55 million in size.
As we reviewed this fund it became obvious to us that the ones making out the best with this fund is the Gabelli Funds LLC as total return since inception in mid 2016 is negative–that’s hard to do with the stock market up as much as it has been over that time frame (the SP500 is up around 20%). We do note that the net asset value of the fund has been flat over the last 9 months. All in all the Go Anywhere Fund is a pretty lousy CEF.
In spite of the lousy performance of the CEF they fund part of their investments with a Cumulative Puttable Preferred Stock–the preferred stock is unrated. Being a closed end fund the company is required to maintain at least a 200% asset coverage ratio on senior securities which, as a preferred stock holder, provides the safety we love.
The preferred stock was originally issued in July, 2016 as part of a combination share which was sold for $100/share. This represented 3 common shares and 1 cumulative, puttable preferred share. This combination share traded on the exchange until November, 2016 when the common and preferred shares were split and commenced independent trading.
The preferred shares traded around $54 to start, but only carry a liquidation preference of $40/share. The giant kicker was the preferred carried a 8% coupon during the 1st year. By the middle of 2017 the preferred shares had fallen to the $44-45 area as the ‘teaser’ rate was set to come to an end.
For years 2 and 3 the preferred shares pay a coupon of 5% (based on $40/share liquidation preference) meaning a 50 cent/quarter distribution. After this time the distribution will be at a rate of 200 basis points over the 10 year treasury, but NOT LESS than 5% nor more than 7%.
Holders of the preferred stock will have the option of ‘putting’ the shares to the fund at $40/share in 2019 and 2021. After the second ‘puttable’ period the shares will become perpetual preferreds with normal terms of redemption applying.
An addition factor of this preferred stock is that the CEF is required to make a tender offer for any and all common shares in 2021. If all shares were tendered the CEF would in effect be liquidated and preferred holders would be paid at $40/share.
It should be noted that this preferred issue trades “by appointment”–meaning tight limits and patience is required to purchase shares. Shares last traded at $42/share meaning a current yield of 4.8%.
We are considering trying to purchase a small 100 share sampler for the Medium Duration Income Portfolio as it fits the needs of the conservative investor. A bit more due diligence is needed before we buy.
We encourage anyone with an interest to read the offering documents which can be found here.
This is not a recommendation for anyone to purchase these shares as we don’t ever make recommendations of buy or sell to anyone (except ourselves).