Weekend stock pick: Special Opportunities Fund

With stock markets reaching all time highs it is natural for investors to feel a bit uneasy about putting more money into shares. Predictions of ‘corrections’ and market crashes are springing up everywhere and while any sensible investor should know that predicting the market is futile, they also know to be cautious when markets are exuberant.

That is what has inspired me to choose Special Opportunities Fund (NYSE:SPE) as the weekend stock, it is a closed ended fund run by Philip Goldstein, a prolific activist investor. I believe this fund can protect investors from a downturn in the market whilst still having upside in a continuation of a bull market, unlike the other alternative, cash. I first came across this fund on the Brooklyn Investor, and I wont repeat his analysis but will highlight the key points from my point of view.

Phil Goldstein

Now I am not usually one to follow ‘star managers’ however Goldstein is something special. He started investing in the early 1980’s and launched a fund in 1993, operating Bulldog Investors. Hedge funds are notoriously difficult to find historical performance of, but fortunately Goldstein provided his returns in a SPE report. As I started to write this post however, SPE’s website does not appear to be working, so you will have to take my word for it.

“Since its inception almost seventeen years ago, our original hedge fund, Opportunity Partners L.P. has generated an annualized return of 12.8% vs. 7.4% for the S&P 500 Index. It has incurred a loss in only one of those years”

Investing style

His investing success is based on a remarkably simple concept. He invests in other closed ended funds that are selling at a discount to Net Asset Value (NAV). Once he has built a substantial position in the fund he then becomes active to force management to realise the full value of the fund for their shareholders. This can involve firing the board, liquidating the fund, share buybacks, or even all three!

Essentially, he buys $1 for 80 cents, and then over the next 1-2 years realises the full value of that $1. This strategy allows him to consistently beat the S&P 500, as he is investing with a margin of safety (discount to NAV) in funds. Any depreciation in the NAV will be mitigated by this margin, and of course, any appreciation he benefits from in full.

Special Opportunities Fund

You can view its SEC filings here. As I said, unfortunately its website appears to have gone down. This had the daily NAV of the fund, and annual reports giving more information on the fund, and statements by Goldstein himself on how he sees the fund. Their latest filing here however at least does show a relatively recent overview of the portfolio. 80% is in closed ended funds. More comments from Goldstein can be read in the March filing here.


The great thing about closed ended funds (and why Goldstein himself likes them) is that valuing them is simple. Unfortunately with their website down however, we can’t see their Net Asset Value which makes an up to date valuation impossible. 1-2 weeks ago I checked and the share price was trading at around a 10% discount to its Net Asset Value. This gives a nice margin of safety in addition to it being a great fund. I wouldn’t expect stellar returns, but it should give good returns regardless of the market, making it a nice hedge and a good place to park cash wihle you search for investment opportunities.

“Currently, the Fund’s portfolio contains a number of investments that have little or no correlation to the stock market, such as special purpose acquisition companies”

I’m not investing just yet though. Firstly because of some logistical reasons with switching my broker, but also I would rather wait until the website is back online and I can see an accurate Net Asset Value of the fund.

Disclosure: The author has no position in SPE but may initiate one in the near future.

Founder of Investing Sidekick. Works as a research analyst and is an avid value investor, always searching for undervalued shares.

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