Gabelli Merger Plus+ 31 January 2019
Disclosure – Non-Independent Marketing Communication
This is a non-independent marketing communication commissioned by Gabelli Merger Plus+. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.
Gabelli Merger Plus aims for absolute returns by investing in announced mergers to earn the spread between the deal price and the market price of the acquired company. As such, it offers returns uncorrelated to equity markets. The company aims to pay a 5% dividend yield on NAV paid out of the cash received when deals close.
The strategy has been run by Gabelli since 1985 with strong absolute returns, compounding at 10.55% since inception, and a beta of just 0.12 to the S&P 500. It has generated positive returns in 86% of months since then. It is worth noting that these returns were generated in an environment with higher interest rates, which are a component of returns.
The trust was launched in July 2017 and has produced solid NAV returns since then. Rising interest rate environments have traditionally been good for the strategy as higher rates increase the spreads on deals.
Gabelli Merger Plus trades on a 12.6% discount stemming from an institutional holder selling out in thin trading since the summer. The board possesses buyback authority but has not yet used it.
Dividends have been in line with the proposed payout of 5% since launch on the starting NAV. However, with the trust moving to a significant discount the annualised yield of the current latest payout is a sizable 5.7%