Gabelli Value Plus+ 23 July 2020

Gabelli Value Plus+ (GVP) aims to achieve strong total returns through investment in a portfolio primarily of US equities. Managed by GAMCO, GVP utilises a disciplined proprietary investment philosophy known as Private Market Value with a Catalyst™.

As we discuss under portfolio, this investment process focuses on both the intrinsic value and strategic premium that a company offers to a potential informed buyer. The team of over 40 analysts look to evaluate and understand stocks from a bottom-up perspective, and identify such opportunities where they also believe there exists a catalyst to drive this value realisation.

A continuation vote will take place on 30/07/2020, and shareholder votes must be submitted before 28/07/2020.

If the shareholders vote in favour of continuation, it is proposed that the trust could adopt new policies regarding an enhanced dividend payout, as we discuss under the Dividend section. This would significantly enhance the levels of distributions were it to be adopted.

Similarly, proposals supporting continuation suggest a lower management fee be adopted (see Charges), and that buybacks be undertaken if the discount exceeds 10%. As we detail under Discount, the board in the previous financial year had in any event tended to support the share price with buybacks when the discount widened past this level.

Performance has been undoubtedly challenging, with both the small cap and value factors, which the trust’s process inherently lends itself to, facing severe headwinds over most of the period since the trust’s launch. As we note under the Performance section, changes in inflation expectations will likely continue to support or weigh on near-term returns.

If the concern of shareholders pushing for a wind-up is over performance, this is understandable looking backwards. However, looking backwards is probably not optimal for understanding prospects for returns. GVP has operated in an environment where stock leadership has been increasingly narrow, and increasingly amongst the largest companies. Some factors, such as the rise of passive investing, have helped contribute to this of course, as has the perception of a move to a ‘new normal’ in the wake of the Covid-19 pandemic and policy.

The question for shareholders is whether and to what extent these factors will persist indefinitely. As we have suggested here, it may be too soon to expect a durable recovery in small caps yet, and further patience may be required. And a higher discount rate (i.e. higher nominal interest rates) would, in our view, potentially help to catalyse and initiate a sustained value recovery. But just because an imminent reversal may not be in the offing (and the word ‘may’ is pertinent here), this does not necessarily mean there does not remain a long-term case for allocation to small-cap value. We would suggest that ultimately US economic dynamism may indeed depend on such a reversal to the favour of smaller companies, and will ultimately require higher interest rates. ‘Should’ is, of course, not the same as ‘will’. But the continued outperformance of large-caps to perpetuity is ultimately likely unsustainable within the current social contract.