In the investment philosophy tab on this website, I mentioned the above heading as an area that I wanted to try and focus on a bit more. I felt in the past that occasionally I would glance at something attractive on my screen but not necessarily follow through. I thought my mindset was being blurred by a few thoughts. For example, “there probably won’t be enough volume anyway”, “I am more an investor not a short-term trader”, “even if it works out, I won’t get the 12-month CGT discount”, “maybe the person on the other side of the trade knows something I don’t”.
Perhaps it was just laziness, and I got the feeling I let some opportunities pass me by.
Anyway, I felt that because my company structure that was starting to hold too much cash might be another reason for not dismissing such potential opportunities so easily.
This website already gave some examples of more of the “coffee can” very long-term hold stocks. Now I thought it was time to give some very brief examples what I might mean by these short-term opportunities that I have been playing in of late.
Contrarian Value Fund Limited (ASX:CVF)
This stock was a LIC that is going through a wind up. Despite the fact my purchases for this short-term trade were relatively poorly timed, I still made a respectable 7% return in not much more than 3 weeks. Some may view this as boring in such a strong bull market. I find it the exact opposite, given what I felt was the very low risk in the trade.
I was buying here mainly on the last days of 2020 and first day or so in 2021 at 32.5 cents a share. When they went ex the 31.5 cent capital return there was plenty of buying activity. I sold my shares at an average of 3.3 cents. I rode some upside optionality probably due to some other investors being interested in the “shell” of this ASX LIC.
Amaysim Australia Ltd (ASX:AYS)
This was a takeover arbitrage that had some good downside protection when I was accumulating around 73 cents. The existing wind-up arrangement had plenty of franking being paid out. I felt there was some good upside potential for another competing bid from a rival telco. In the end that didn’t eventuate however WAM Capital came up with an improved offer. I also thought there was a bit of a chance WAM might have to sweeten its terms a little to get the deal across the line. Although that didn’t eventuate, and even though I didn’t time my exit very well, I made about 6% in a 3-month timeframe.
Xplore Wealth Limited (ASX:XPL)
I came quite late to this trade and bought some shares at 19 cents in mid Jan as it was under a takeover offer from HUB. By my reckoning at the time there was still an annualized return of 40% or more on the table, despite in my view that the takeover was almost certain to go through. This was based off where HUB scrip was trading and noting that it was roughly 50/50 in terms of a scrip / cash deal. Like with the AYS / WAM deal above there is a bit of a risk that the acquiring scrip weakens once the deal goes through. In this case with HUB though, XPL was a relatively smaller for it to swallow, and as I noted here we had some more certainty in that half the consideration was 20c cash to be paid.
In this case HUB shares did start to weaken considerably, but I still managed almost 25% on an annualized return basis. Virtually everyone voted in favour of this deal, so I think such returns that were on offer here were very good versus very little risk at all on the deal falling through. I was a bit late to this trade as I had capital tied up more in AYS & CVF late last year. The returns are even better for those researching this well in November because you could get plenty of stock then at 18c versus me getting filled some in January at 19c.
Sandon Capital Investments Ltd (ASX:SNC)
Sometimes I observe in LIC trading events that can see a strong likelihood of the discount contracting. With the relatively concentrated nature of the SNC portfolio, on occasions I feel that the market is slow to digest the moving components. Early in 2021 some of their holdings were making some positive announcements. In the current financial year SNC had seen a very good rebound in performance and were on track to give confident guidance of their high fully franked dividend yield. With many other LICs seeing their discounts contract of late, I thought their “live” discount that I estimated of at least 17% gave more good downside protection to ride on their portfolio in the shorter term.
The idea is I might get to exit this within a few months or so at a discount closer to 10%, and have ridden about a 7% tailwind from a factor aside from market / portfolio movements. As I write though it remains to be seen whether this works out or not.
Antipodes Global Investment Company Ltd (ASX:APL)
Last week I started accumulating this LIC at a discount to the after tax NTA of circa 12%, a larger discount to pre tax NTA. They have later in the year scheduled an off market buyback offer for at least a quarter of your holding. This gives a high likelihood for part of the investment you will entirely close the discount to NTA (aside from 2% deduction in calculated buyback price) in around a 9 month period. This provides quite an attractive, almost certain tailwind to the investment, that is independent of market / their portfolio movements.
Aside from this the LIC has shown good corporate governance in the past, is a good size for scale. It is below its high watermark so if their performance bounces back you don’t get hit by performance fees for a long time. They may also benefit from a return to favour of value vs growth.
Sunland Group Limited (ASX:SDG)
Whilst this trade might be longer than a year, it is a little bit in the short-term category because some returns may come back quite quickly in terms of fully franked dividends in 2021. This already started as they announced a juicy dividend when reporting their half year results in February.
They are a property group in the process of a wind up announced in the back half of last year. I was a buyer shortly after in the 1.90s and they managed to hit 2.70 after their bullish half year report and cum the big dividend just announced.
NTA was a bit above 2.50 but the market seems a bit slow to wake up to a few factors. Most of the wind-up payments might come in the form of fully franked dividends. Management in my opinion is more credible than widely perceived and the reported NTA is arguably too conservative. Finally the property market has improved since they announced the wind up initially in August 2020.
I hope now some of the above gives some more colour on when I said I intend to use a lot of my company funds (Green Research Consulting) in more shorter term trading opportunities (in addition to part of my investing in the “coffee-can” type approach). To say I will be looking for shorter term trading opportunities without giving any examples can be a bit vague. Such trades may also be a prominent strategy within my SMSF (Green Activist Retirement Fund), which I will endeavor to update the longer term performance history here on this site.
Steve Green Research 