by InteractiveAdvisors
by InteractiveAdvisors
Strategies

Dan Plettner Shorts MTS

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Disclaimer:  Dan is short MTS and PGP in his Covestor Long-Short Opportunistic model.

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, MLP Direct Ownership, and Taxable Income models for its clients. Dan’s words should not be misconstrued as investment advice.

October 19, 2010:  Friday afternoons and weekends have long been observed an opportune time for low profile public companies and Closed-End Funds to disseminate undesirable but market-relevant news. The conspiracy theory explanation infers that if nobody is around on Friday afternoons, the news will be ignored or forgotten by the time Monday rolls around. I’m not a big believer in the theory, but I attempt to be alert at all times.

On Friday afternoon, October 15th 2010 I shorted Montgomery Street Income Securities (MTS) at $16.39 in the account licensed to Covestor’s Long Short Opportunistic model shortly after the closed-end fund announced a distribution cut from 22 cents to 17 cents. Based on Friday’s $17.53 closing Net Asset Value (“NAV”), the new quarterly distribution represented an annualized rate of nearly 3.8%, down from an excess of 5%. As a Closed-End Income Fund, MTS’ peer group frequently trades on yield.

My thesis calls for a long, slow bleed in MTS relative valuation as Institutional Holders such as SIT Investment Associates (whose most recent 13-F  reported owning nearly a million shares), 1607 Capital Partners, and Claymore Advisors may be in an undesirable position for which they would recognize the illiquidity challenges of a prompt exit.

I am short MTS because I believe its shares will prove to trade largely on yield, and because of my views on governance within this and other Allianz family Closed-End Funds. Among Allianz’ Closed-End Funds, I am also short Allianz’ Pimco Global Stocks Plus (PGP) which trades at a greater than 65% premium to its NAV. I recently contributed an article to Seeking Alpha which observes Allianz’ Closed-End Fund governance.

AUTHOR

Dan Plettner
Dan Plettner
For more than 14 years I've focused my investing and research efforts on Closed-End Mutual Funds, called CEFs. They represent an alternative way to invest in stocks and bonds. CEFs frequently trade at a discount relative to the price of fund’s underlying portfolio, which I personally see as a way to own stocks and bonds at a discount to their underlying value. I previously worked as a closed-end fund product specialist at Morgan Stanley. More recently, I provided independent closed-end fund research to institutional investors. I have written more than 50 articles regarding closed-end funds and am frequently quoted in the media. My goal is to invest in funds that I believe offer a favorable mix of risk versus potential reward. I attempt to earn a profit when the gap between the market price and the net asset value of a fund narrows.

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