To Our Shareholders,
For the year ended December 31, 2020, the net asset value (NAV) total return per Class A Share of The Gabelli Value 25 Fund Inc. was 5.8% compared with a total return of 18.4% for the Standard & Poor's (S&P) 500 Index. Other classes of shares are available. See page 3 for performance information for all classes of shares.
Enclosed are the financial statements, including the schedule of investments, as of December 31, 2020.
Performance Discussion (Unaudited)
The investment objective of the Fund is to seek to provide long term capital appreciation. The Fund's investment strategy is to invest primarily in equity securities of companies that Gabelli Funds, LLC (the Adviser) believes are undervalued and have the potential to achieve significant capital appreciation, overweighting its core 25 equity positions. The Adviser invests in companies whose securities are selling at a significant discount to their private market value (PMV). PMV is the value the Adviser believes informed investors would be willing to pay to acquire the entire company. If investor attention is focused on the underlying asset value of a company due to expected or actual developments or other catalysts, an investment opportunity to realize this PMV may exist. The Fund may invest in companies of any size and from time to time may invest a greater portion in companies with large, medium, or small market capitalizations.
In selecting investments, the Adviser also considers the market price of the issuer's securities, its balance sheet characteristics and the perceived strength of its management. The Fund's assets will be invested primarily in common stock. Many of the common stocks the Fund will buy will not pay dividends. These stocks will be bought for the potential that their prices will increase, providing capital appreciation for the Fund. The value of equity securities will fluctuate due to many factors, including the past and predicted earnings of the issuer, the quality of the issuer's management, general market conditions, and the forecasts for the issuer's industry and the value of the issuer's assets.
The first quarter of 2020 was one of the worst in stock market history, with the novel coronavirus that causes COVID-19 spreading rapidly around the globe, and societies everywhere responding with various forms of "social distancing," culminating with most of the global economy being shut down. Government action β both monetary and fiscal β was crucial, and the CARES Act signed into law on March 27 was a good start in providing relief to both individuals and businesses. The Federal Reserve slashed interest rates near zero, and bought securities in a number of asset classes β treasuries, mortgaged backed securities, asset backed securities, corporate credit, loans backed by the Small Business Administration β in order to stabilize markets and the economy. Through June 30, the S&P 500 was off a mere 3%, having rallied almost 40% from its March low. Growth stocks continued their winning streak, powered by Facebook (FB, Financial), Amazon (AMZN, Financial), Netflix (NFLX, Financial), Google/Alphabet (GOOG, Financial)(GOOGL), Microsoft (MSFT, Financial), and Apple (AAPL, Financial). A preview of what recovery may ultimately bring for stocks occurred briefly in late May/early June when smaller capitalization and value stocks snatched market leadership before reversing.
Stocks continued to rise during the third quarter of 2020, with the S&P 500 up 8.9%, as gains in July and August were partially offset by a decline in September. The main issues the market is grappling with remain largely around the COVID-19 pandemic and how long it will persist. Will "second wave" cases spike significantly higher, leading to a return to more dramatic economic shutdowns? When will therapeutics and vaccines be ready for development and distribution? Despite all the uncertainty and many headwinds, this environment supports a low discount rate and high earnings multiple for stocks. Merger & acquisition activity has also seen a resurgence and financial engineering and share buybacks are beginning to resume.
It took COVID-19 to end the United States' longest bull market at 131 months, only to give way to its shortest bear market at just over one month. After declining 34% peak-to-trough February to March, the S&P 500 Index ended up 18% for the year, 65% off its March low. Unfortunately, even in the face of rising asset prices and an overall increased savings rate, an extended economic shutdown has strained the balance sheets and impaired the skills of many employees and small business owners.
Among the better performing stocks for the fiscal year were: Sony Corp. (SNE, Financial) ADR (9.3% of net assets as of December 31, 2020), a worldwide designer, producer, and seller of electronic equipment, instruments, and devices saw benefits from the increased stay at home demand with growth in cloud gaming and strong sales of the PlayStation 5 gaming console. Swedish Match AB (OSTO:SWMA, Financial) (6.9%), an international manufacturer of tobacco products, saw increased sales in the nicotine pouch category and benefits from the stay at home demand.
Our weaker performers included Viacom CBS Inc. (VIAC, Financial) Class A (9.6%), a worldwide media and entertainment company that saw increasing competition from other stream.
Thank you for your investment in The Gabelli Value 25 Fund. We appreciate your confidence and trust.
