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Liberty Equity (USA) - A Nice Discount and Clear Catalyst

September 17, 2012 | About:

One of my favorite blogs to follow is the Brooklyn Investor. It’s an absolute must read (especially if you invest in the bigger financial companies) because of how clear, concise and interesting the writing is.

Unfortunately, I rarely find investing ideas from it simply because he fishes in a bigger pool than I do.

So it was with great interest that I read his most recent post on the Special Opportunities Fund (NYSE:SPE). And while I may make an investment in the fund at some point (depending on discount to NAV and how many attractive opportunities I’m finding), the first thing I wanted to do was see if I could steal any special opportunities from the fund's current investments.

The first investment that jumped out at me was Gyrodyne (NASDAQ:GYRO), which I mentioned a long time ago.

Unfortunately, however, I missed the bulk of that “boat” — the stock has gone from less than $50 from when I first wrote it to approximately $110.

But then I noticed their investment in Liberty Equity (NYSE:USA). At the closing price of $4.87 (as I write this on September 13), the fund trades for a greater than 7% discount to NAV at the beginning of September. The actual discount is probably wider, however, given how much markets have run up in the past few days.

Even more than the discount (and the tasteful ticker), what makes an investment in USA so attractive is the strong catalyst. Check out what SPE said in their annual report this year:


Then here’s what they said in their most recent semi-annual report (literally released a few days ago):


Add it all up and when you invest in USA (gosh, I love saying that!), you’re getting:

  1. A pretty broad-based fund trading at a discount with
  2. An activist investor with a history of successfully closing value gaps in closed end funds and
  3. A manager who has already given in to the activist once and seems ready to cave again!
Is it the highest risk/reward opportunity of all time?


But given the above, it’s hard for me to see this investment not delivering a good bit of alpha on a pretty tight time frame.

Thus, I’ve added a small tag-along position. Feel free to join!

Disclosure: Long USA. May go long SPE at some point in the future

Rating: 3.5/5 (4 votes)


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