I do so for two good reasons.
The first is that I can frequently find an income yield higher than the income yield offered by traditional sources, such as stocks or bonds.
The second is that the more diversified the income stream, the less risky the investment portfolio.
The novelty quotient is frequently elevated because these investments will employ strategies I can’t readily employ.
I offer an example.
Phil Goldstein is the co-founder of, and principal at, Bulldog Investors. Goldstein is an expert closed-end-fund (CEF) investor.
Where I’ll take the passive approach, buy-and-hold, Goldstein takes the active. He invests and then agitates underperforming CEFs to get their act together and improve performance.
And if management resists?
Off come the gloves.
Goldstein will seek a proxy fight. Bulldog Investors has engaged in 40 proxy fights. Most campaigns have been won either by Bulldog Investors with board representation or with management acquiescing to Goldstein’s demands.
So, activism is one approach. SPAC investing is the other.
Goldstein is also a recognized expert in SPAC investing.
What in the world is SPAC investing?
Glad you asked.
An SPAC is a special-purpose acquisition company (SPAC). They’re companies formed to buy other companies.
An SPAC is conjured into existence via an initial public offering (IPO). The IPO usually consists of shares and warrants (and sometimes rights) that are exercisable only if a transaction – a merger or an acquisition – is completed.
Goldstein and his cohorts at Bulldog Investors harness their expertise to identify the best SPAC opportunities. They employ a disciplined bottom-up, fundamental exploration of each SPAC that hits the market.
Bulldog Investors typically buys an SPAC at the IPO price. It then sells the warrants as soon as they are freely traded. Bulldog Investors then waits for a deal to be announced.
And when a deal is announced, Bulldog Investors frequently votes against it. This might sound counter-intuitive. It’s not. Bulldog Investors’ money is returned with interest to generate an 8%-to-10% annualized return.
SPACs are a “head-I-win-tails-I-still-kinda-win” proposition.
The Special Opportunities Fund (NYSE: SPE) is your opportunity to invest with Phil Goldstein and Bulldog Investors. It’s your opportunity to invest as an activist and as an SPAC investor.
The Special Opportunities Fund is a CEF managed by Bulldog Investors. The CEF has $188.5 million in assets under its control.
Fifty-seven percent of the assets are allocated to fund investments, namely those value-priced, discounted CEFs. Another 24% is allocated to the aforementioned SPACs.
The activism and other activities are undertaken for a primary purpose – to generate income for you.
The Special Opportunities Fund pays its investors monthly distributions at a rate of $0.076 per share. The distributions generate a 6.5% income yield on investment when annualized.
That’s the distribution and yield today. It could be even more tomorrow.
The Special Opportunities Fund will set its monthly distributions for 2020 at 6% of the NAV on Dec. 31.
More income could be on offer.
The Special Opportunities Fund’s NAV is $15.65 today. If that’s the NAV at the end of the year, the monthly distribution will rise to $0.078 per share for all of 2020.
But consider this: the NAV has trended higher for most of 2019.
If the Special Opportunities Fund rolls into 2020 with a rising NAV, investors will benefit from an even higher monthly distribution.
I like novelty when it’s legitimate. The Special Opportunities Fund is certainly a novel, legitimate investment.
More important, it’s a source of immediate high-yield income, with the potential to be a source of even higher-yield income next year.