Swiss Helvetia Fund Special Situation

Swiss Helvetia Fund Special Situation

I’m back, bitches. See? I told you guys I wouldn’t abandon you completely.

(Goes for cigarettes, never comes back)

Let’s talk a little about an interesting special situation I came upon. The Swiss Helvetia Fund (NYSE:SWZ) is a closed-end fund that has been around since 1987. As of December 31st, 2016, it held 38 stocks, six direct private equity investments, and one participation in a private equity limited partnership. The fund’s largest positions include Novartis, Nestle, UBS Group, and something called Roche Holding. These top four positions account for about 42% of assets.

There’s really nothing special about the fund. It has a 1.19% (in 2016) management expense ratio, which is pretty expensive. It’s not hard to get exposure to a basket of Switzerland-listed equities in 2017. It really just exists to generate fees for Schroder Asset Management, who manages the fund.

Enter Bulldog

Bulldog Investors have been forcing these shitty closed-end funds into action for years now.

Their schitck is more predictable than my laziness. They establish a position in a closed-end fund without a lot of insider ownership (i.e. 99% of them). They amass about 10% of the outstanding shares and then start stirring the pot. As the largest shareholder, they usually get exactly what they want.

Bulldog has set its sights on the Swiss Helvetia Fund. The main guys involved with Bulldog have amassed 2.1 million shares, or about 7.5% of the 28.2 million shares outstanding. Karpus Investment Management owns 1.4 million shares, and 1607 Capital Partners owns 3.2 million shares. Lazard Capital Management also owns 2.4 million shares.

All four of these companies have a history of being activist investors who are willing to rattle a few chains. Together, they own about one third of the fund’s shares.

Bulldog recently wrote a letter to the fund’s management, saying it intended to nominate “one or more” of their partners to the fund’s board of directors. They also plan to ask the current shareholders to vote on whether they support continuation of a bylaw specifying director qualifications.

In short, Bulldog wants to take over the Swiss Helvetia Fund’s board of directors, and it likely has the votes to do so.

There’s more. In the last two weeks, both the Fund’s Treasurer and Chief Legal Officer have resigned. And most importantly for us, the Fund has announced it will buy back up to 10% of its shares on April 24th.

The opportunity

As I type this, Swiss Helvetia Fund shares currently trade hands at $11.59 each. They have a net asset value of $12.76 per share. Thus, shares trade at a 9.2% discount to their current value.

The tender offer has been made at 98% of net asset value, meaning the bid will come in at $12.51 per share. This will change over the next month, of course, since the Fund tracks a basket of publicly-traded stocks.

Say you buy 500 shares today at $11.59. Assuming $7 in commission, your total cost comes in at $11.60. The sale would be at $12.51 (remember, brokerages don’t charge a commission to tender shares), giving us a profit of $0.89 per share, or 7.8% in a little less than a month.

The risk

There are two major risks. The first is underlying asset risk. If the Swiss Franc gains ground against the U.S. Dollar in the next month, that would depress the price of the Fund. The smart move would be to simultaneously short an equal amount of shares, thus locking in the spread.

The far bigger risk is not getting enough of the deal to make it worthwhile. The Fund will only tender up to 10% of outstanding shares. Logic would dictate some of the major shareholders would try to tender at least a portion of their shares. Remember, they own a third of the company.

Here are a few scenarios.

Tendered Our Fill Profit*
10% 100% 7.8%
20% 50% 3.9%
30% 33% 2.6%
50% 20% 1.56%

*The profit column assumes the spread stays the same as today.

There’s no way we can tell how many shares will be tendered. But we can use a similar tender offer to guess how many shares will be tendered.

Each year, the Canoe EIT Income Fund (TSX:EIT.UN) does a similar tender offer. It limits the annual redemption to 10% of total units at 95% of net asset value. 42.8% of shareholders tendered their shares in 2016.

If a similar percentage tendered their Swiss Helvetia Fund shares, our profit would be about 2%, barring any crazy moves.

You might not think that’s very exciting, but keep in mind that you’ll make 2% in just 26 days. That works out to a 28.1% annual return. Not bad. And that’s pretty much a worst case scenario outcome. If the big shareholders decide to hang on, the profit could be much larger.

Disclosure: Nelson does not own any shares listed, but will likely buy Swiss Helvetia Fund shares in the next few days. 

Financial Uproar Made Me Poorer

Financial Uproar Made Me Poorer

Those of you who show up here multiple times a day (God bless your pathetic hearts) have probably noticed that I didn’t post any content on both Tuesday and Wednesday. Well the joke’s on you, because I really did. I just posted it with invisible ink.

Back in August, I made the decision to update this here blogening every weekday, for a number of different reasons. The biggest was I wanted to turn Financial Uproar into part of your daily routine. The Canadian finance blog-o-net is really missing such a thing. It seems like everyone else has embraced the less is more business model.

The plan was to eventually up the traffic to the point where I could sell premium products. And for a while, it was working. Between August and February, traffic was up 125%. People actually started to comment and email and ask me questions on Twitter. It was a fun time, albeit a little exhausting.

Naturally, the time commitment went up too. I went from spending ~5 hours a week on this thing to 15-20 hours. Which was fine. I had the time, and it was mostly enjoyable. It still is, actually. Talking to you guys without a filter is fun. Damn ass hell bitch fun.

There was just one problem. The Uproar didn’t make any additional money.

I found myself in an interesting conundrum. I needed to hire somebody to write blog content so I’d have time to create premium stuff. Except the blog wasn’t making enough money to do that. Besides, I make my living writing stuff for other people. I’d be paying people to do my job.

I could hire people to try and really supercharge this thing and turn it into a business. Or I could step back and spend more time on the websites that did pay me. The choice was risk capital for a large potential reward or take the potentially smaller reward today. I chose the coward’s way out.

So what’s next?

I’m not going to abandon you kids. Financial Uproar will still be active. It just won’t be every day active. In fact, there won’t be any set schedule. I’ll just post whatever I want, whenever I want. There will be more of a focus on my own personal decisions rather than generic SEO-type stuff.

The plan is to spend the 10-15 hours a week in extra time I’ve created searching for new income streams,  focusing on the kind of stuff that requires semi-active management. I figure this will make fun blog fodder and will be a good use of my time all the same.

In short, Financial Uproar will go from being a business to the place where I talk about my other business. I’ll do a write-up when I buy a new stock or buy a piece of real estate or whatever. I won’t keep up the weekly link dealies, but I’ll probably do one every few weeks rather than every week. It’s much easier that way.

And that’s about it. See you kids next week.

Gaming Companies Who Have Shocked The Investment World

Anybody who has seen the digital revolution propelling the likes of Facebook, Amazon and Google into becoming household names will know that the online realm represents a smart investment opportunity.

And whilst the recent Snapchat IPO showed how a simple social media app can generate millions, there are plenty of other success stories in the online gaming realm.

Thanks to the proliferation of mobile technologies, online gaming has become incredibly popular with a vibrant development scene packed with innovative start-ups and small businesses who are able to keep overheads low, whilst reaching global audiences through app stores.

Overnight success

minecraft-655957_960_720

When a Swedish office worker quickly created the ground-breaking world-building game, Minecraft, on a coffee break, he could have had little idea that his creation would be sold to Microsoft for $2.5 billion.

And whilst we might not all be able to use programming skills to catapult ourselves to the height of luxury, there are many other ways that we can get involved in the potentially lucrative online gaming scene.

Emerging trends

Girl Smartphone Technology Woman Mobile Texting

Girl Smartphone Technology Woman Mobile Texting

All investors will know how important it is to be aware of growing social trends and changes in behaviour to anticipate which areas are going to be most profitable.

Whether it’s catching up on Lucky Nugget Casino’s guide to how millennials and their smartphone dependence could lead to a mobile casino boom, or even seeing how video games are starting to compete with traditional sports thanks to the eSports phenomenon, it all shows how there’s plenty of exciting opportunities ahead of us.

Upcoming IPOs

32828395410_0303dea9c0_b

Perhaps it’s because online gaming is so new that it’s helped many overnight success stories. Companies like Finland’s Supercell now enjoy yearly revenues of $2.3 billion merely by creating simple multiplayer smartphone games like Clash Royale. And through an innovative ‘freemium’ pricing structure, Supercell have encouraged a climate where a one-off payment is no longer the standard for the online gaming realm.

And it’s not just Supercell who are heralded the Finnish gaming revolution, as their compatriots Next Games are expected to have a $30 million IPO in the coming weeks that could prove to be a very shrewd investment opportunity for many.

So whilst we may all recognize that the mobile gaming revolution has given us the chance to play anything from puzzle games to online casino titles with ease, it looks like there are many other ways that we can all reap the benefits from video gaming.

The True Secret To Getting Rich

The True Secret To Getting Rich

Oh boy! It’s my click-baitest title ever!

Now before all you kids pelt me with soft, over-ripened tomatoes, allow me to explain. OH GOD WHY WON’T YOU ALL LET ME EXPLAIN.

Many people (myself included) think reading is a huge part of one’s success. A book is one of the best investments you can possibly make. For a price as low as zero dollars (thanks library!), you can get lessons it took great men decades to learn condensed down into a chapter or two. All it costs is a little time, which probably would have been squandered anyway.

What a fantastic return on investment.

There’s just one problem. Books promote a culture of inactivity. There’s an army of people who are nose deep in a book right now, trying to discover the true secret to getting rich. If only they read enough, they say, they’ll figure it out. It’s gotta be in here somewhere.

It won’t be. No book will ever contain the true secret to getting rich. Because ultimately, getting rich involves one thing.

Action

There’s definitely a correlation between reading and becoming wealthy. There’s no doubt about that. Buffett reads a ton. So does Charlie Munger, Bill Gates, Charles Koch, and most other billionaires.

But there are notable exceptions. Let’s start at the top.

“Well, you know, I love to read. Actually, I’m looking at a book, I’m reading a book, I’m trying to get started. Every time I do about a half a page, I get a phone call that there’s some emergency, this or that. But we’re going to see the home of Andrew Jackson today in Tennessee and I’m reading a book on Andrew Jackson. I love to read. I don’t get to read very much, Tucker, because I’m working very hard on lots of different things, including getting costs down. The costs of our country are out of control. But we have a lot of great things happening, we have a lot of tremendous things happening.”

Yes, that quote is from the leader of the free world.

Much as we crap on Donald Trump, and much as Trump deserves it, he has been remarkably successful in his life. After becoming the most famous real estate developer in the world, the guy became a best-selling author (despite not even writing the damn book!). He followed that up by becoming one of the biggest stars on reality TV. And then, as an encore, the dude became the president of the freaking United States.

Trump’s secret to getting rich wasn’t reading or waiting for the best opportunity to strike. He simply went out and did stuff.

There’s an old expression about overnight successes. It takes 20 years of toiling in obscurity to become an overnight success. Guys like Donald Trump may have accelerated the process a little, but the point is still valid.

Here’s what happens. Somebody works hard at something, and then they get a little success. They keep on going and get a little more momentum. They keep building and building until these small successes start becoming medium-sized. And so on. By the time any of us notice, this person has already moved up to big things.

Meanwhile, the voracious reader is stuck at square one, still searching for the magic bullet. If only he read more books! Then he’d find the true secret to getting rich! It’s gotta be in one of these books somewhere…

There’s no secret to getting rich

Look, you all aren’t stupid. You’re smart people who are ambitious enough to try and improve your lives. You’re the best people, and I’m not just saying that because y’all read my thoughts every day.

Everyone reading this knows how to get rich. The secret is no secret. You have to create capital and put it to work in interesting opportunities. That might be through an index fund. Or it could be buying a trailer park, investing in private mortgages, or starting your own business. Part of the fun of this whole exercise is there’s no set path. There are just a number of similar guidelines everyone follows.

The closest thing there is to a secret is to just go out there and do stuff. If you already have the tools, it all comes down to execution. Don’t be the person who doesn’t do anything, paralyzed with his nose in a book. Research is encouraged, but all the research in the world doesn’t matter without taking risks.

Weekly Linkfest #29

Weekly Linkfest #29

It was Daylight Savings a little over a week ago, that magical weekend where clocks go back an hour for no good reason and everyone notices what a difference an hour less sleep makes.

I could maybe understand the thought process back in the 1920s when electricity was scarce and light bulbs actually made a difference. But a lot has changed in 160 years, including the ability to do basic math. There’s no need to try to save electricity today. Energy saving measures are already doing that without us.

Which is why I was happy to hear the ruling NDP party in Alberta is considering abolishing the practice and leaving the province on central standard time all year round, which is the same as Saskatchewan. The party plans to vote on the bill soon (which will likely pass), making it two things the NDP has done I like.

The other was banning most door-to-door sales. If those guys keep going, I might have to vote for them.

(Realizes the Carbon Tax is still a thing)

(Shakes fist wildly)

Like I could vote for the socialists. How would I sleep at night? I normally sleep on a pile of money but the NDP wants to take it away.

Links I liked

1. Holy Potato weighs in on the fiasco that is the Home Capital Group fraud case, which a lot of fingers being pointed at CMHC. But as much as I want to see Home Capital fall, and much as Home Capital deserves it, I’m mostly bored of the whole exercise. I want it to be over with. It’s just the same people shouting the same arguments back and forth to each other. There’s more independent thought at a Trump rally.

2. Freedom Thirty Five Blog points out just how much better it is to live in Canada versus the United States. As much as I ideologically like the idea of free market health care, the U.S. is proof such a thing just doesn’t work. Socialized medicine is a huge plus for Canada.

3. The Federal government is getting ready to tax the living hell out of y’all with its next budget, which comes out next week. Potential changes include a 75% inclusion rate for capital gains, taxing stock options differently, higher taxes for small corporations, and more. Garth Turner has all the ugly details.

4. Here’s a story about how a convicted fraudster tricked a small town into giving him a bunch of money for a reality show. I’ll give the guy credit, it’s at least 47% more clever than most frauds.

5. Here’s a great interview with billionaire real estate mogul Michard LeFrak, from my new favorite Youtube channel, Investors Archive. Look for a lot more of these links over the upcoming weeks.

6. It’s not very often I enjoy a book review post, but Paul from Asset-Based Life could write an entertaining post on his grocery list. He reviews a Japanese decluttering book that’s far better than you’d think.

7. Barry from Money We Have asks an important question that needs to be brought up more often. What exactly is your money for? What are you working towards? There’s no point in having a goal if there isn’t a why attached.

8. Roadmap 2 Retire outlines why he recently bought TD Bank on the heels of its sales controversy. I agree with his thinking completely. People have already forgotten about it. It’ll be such a non-issue a year from now.

9. Interesting post from The Rational Walk, which thinks that investors shouldn’t share ideas with each other, saying that good investments are rare and should therefore be guarded. I prefer a hybrid approach, which is buying a full position and then sharing it with you guys.

10. Here’s how Peter Cundill, an extremely underrated Canadian deep value investor, approached investing.

Stuff Nelson wrote

1. A lot of people seem to think you need a minimum of $1 million to retire today. I disagree, outlining how retirees with significantly less can still avoid eating cat food.

2. I also pointed out four reasons why your “can’t miss” marijuana stock investment could turn out very badly.

3. Finally, I wrote about Target, which recently announced a $7 billion investment in its stores. Very little of that cash is going towards its digital business. This is a colossally dumb decision to make in 2017.

Tweet of the week

What am I supposed to do, not make fun of St. Patrick’s Day? What a useless holiday. Screw you and your green beer.

Have a good week, everyone.