The below text is licensed to Covestor Ltd. (“Covestor”), by Dan Plettner. Such text may be disseminated only by Covestor. Dan Plettner invests and receives income for securities research, including “buy-side” research. Dan licenses his own real time trading data to Covestor Ltd. (“Covestor”). Covestor is a Registered Investment Advisor that uses Dan Plettner’s data to create the Core, Long Short Opportunistic, Tax Advantaged Income, and Taxable Income models for its clients. Dan’s words should not be misconstrued as investment advice.
On the evening September 13, SunAmerica Focused Alpha Growth Fund (FGF) and SunAmerica Focused Alpha Large-Cap Fund (FGI) each announced the intention to conduct tender offers. In reaction to the news, FGF’s market price rose 2.5% from the prior day close of $14.82 to $15.20 on Tuesday, September 15, 2010. FGI’s rose 0.5% from $13.92 to $13.99. The Dow and S&P declined slightly on the day.
FGF, which I sold on the news, had been among top 5 holdings in both my Core and Long Short Opportunistic models. I had accepted the concentration risk associated with owning FGF in two models, both accounts parts of my own blended portfolio, in believing FGF would be the primary beneficiary if and when their respective Boards took action.
Details always matter, and I would have liked to see much better news from SunAmerica. The “in kind” nature of these near term tender offers motivates me to take only a small and disappointing profit early because it is impractical to participate. Actual participation in “In kind” tenders is most practical for large block holders, frequently institutions.
From my experience investing in Closed-End Funds, I find it wise as a small shareholder to close my position now, even though I find the nature of the tender quite disappointing. If I don’t sell ahead of the actual in kind tender offer, I fear and expect it will trade to a wider discount when the “in kind” tender passes.
I will forgo on commenting as to why SunAmerica chose the “in kind” tender that it chose. It certainly affects the practicality of the ordinary shareholder’s participation. Please know that Closed-End Fund press releases should never be assumed to provide all relevant color. I do not expect SunAmerica wants to talk about whether or not the Special Committee was largely interested in forfeiting minimal Assets Under Management “AUM” for the Advisor, and returning to a less savvy shareholder base.
I do not want to own the SunAmerica Closed-End Funds long term at small discounts. I do not see them as pro-shareholder Closed-End Funds. I would consider only acquiring a block, at a discount, to participate in the In Kind tender much as an institution would.
