瑞士Helvetia基金可能很快就会使用激进投资策略

Swiss Helvetia Fund is currently a closed-end fund that primarily invests in Swiss equity securities traded on a Swiss stock exchange.

Bulldog Investors gained control of the Board in 2018 and is proposing a complete change in the fund to use a closed-end fund \"activist\" strategy with higher management fees.

The shareholder vote on the proposals is coming up on October 31.

If the proposals all pass, the fund will commence a tender offer for 15% of the outstanding shares at 95% of NAV.

The Swiss Helvetia Fund (NYSE:SWZ) has experienced some big changes over the last few years:

- In 2017, Bulldog Investors elected two directors to the Fund Board. Shareholders then approved a proposal for a large self-tender offer and elected two more Bulldog-associated directors.

- In 2018, SWZ made a large capital gains distribution of $4.91, followed by a huge tender offer for 65% of the shares outstanding at 98% of NAV. Because of this, the Fund's assets were substantially reduced from over $300 million to the current $120 million.

- In January 2019, The Fund's previous executive officers from Schroder Investment Management resigned and were replaced by Andrew Dakos and Thomas Antonucci of Bulldog Investors, LLC.

- On August 20, the Fund published a proxy statement for shareholders to vote on Bulldog's proposals for the new activist investment fund strategy.

The changes include:

1) New Investment Advisory Agreement: The investment management fee will be substantially increased. The current agreement is for 0.70% of net assets and includes breakpoints for lower fees as the Fund's assets increase.

The new proposal is for 1.25% of managed assets up to $100 million and a reduced fee of 1.15% for assets over $100 million. Managed assets means the Fund's net assets plus any debt or preferred stock (which is subtracted when computing net assets). The Fund currently does not use debt or preferred stock, but it is quite possible that leverage will be used in the future if approved by shareholders.

The Board's justification for the advisory fee increase is given below:

They published a table comparing the proposed advisory fee with some other funds that use an "activist" approach - Special Opportunity Fund (NYSE:SPE), Full Value Partners (Bulldog's activist hedge fund which is being wound down), Pershing Square Holdings (OTCPK:PSHZF), and Third Point Offshore Investors (OTC:TPNTF).

"The Non-Bulldog Directors also noted that unlike FVP, PSH, or TPOU, Bulldog would not be paid a performance fee."

* Based on an annual fee of 1.25% of the first $100 million plus 1.15% in excess of that.

While SPE currently uses an activist strategy for a portion of its investments, it also uses other strategies such as SPAC investing and longer term investing in closed-end funds and BDCs where there is no activism involved. It appears that Bulldog wants to focus SWZ more exclusively on activist investing:

2) Replace Fund Investment Objective

The fund investment mandate will be changed from "fundamental investment objective" to "non-fundamental objective of total return".

3) Eliminate Some Investment Restrictions

The following investment restrictions would be removed in the new fund:

- Closed-end funds will be excluded from the concentration limits.

- The Fund will be allowed to issue senior securities (e.g. preferred stock or bonds).

- The Fund would be allowed to make loans.

- The Fund will be permitted to buy or sell commodities, commodity contracts, futures contracts, real estate or interests in real estate for hedging and risk management purposes. The Fund could also engage in transactions secured by real estate or of companies that invest in real estate.

- The Fund will be permitted to make short sales of securities for hedging purposes. This could allow the Fund to take a long position as an activist in a closed-end fund and sell short a correlated ETF to hedge the market risk.

If all of the shareholder proposals are passed, SWZ will commence a 15% tender offer at 95% NAV. This provides at least a partial exit above the current market price for shareholders who want to sell some of their position. The tender offer is accretive to NAV, so even shareholders who do not tender will get a small benefit.

Of course, there is a cost for Bulldog's activism. In 2018, the Fund paid $178,000 in proxy solicitation cost to Bulldog. The 2019 proxy expenses are estimated to be around $40,000.

In a report published in September, Institutional Shareholder Services, Inc ("ISS"), a leading independent proxy advisory firm, recommended that shareholders vote "FOR" all of the proposals. As of October 3, the Fund had received more "FOR" votes than "AGAINST" votes on all of the proposals. But the meeting was adjourned to October 31 in order to allow more time to solicit proxies.

In the current market environment, most closed-end fund discounts are not as attractive as they were at the end of 2018. If shareholders approve the changes as expected, the new fund which will invest primarily in activist plays could be a good low-beta way to diversify a portfolio.

There are many ETFs and closed-end funds available, but most of them closely track well known indices. Bulldog runs the Special Opportunity Fund as an alternative fund that generates total returns using opportunistic investing in less followed securities such as closed-end funds, special purpose acquisition companies, business development companies and special situation equities.

If/when the shareholder vote passes, the new SWZ will be similar to SPE, but will be more focused on activist investing. For example, SPE currently has five fairly large positions in closed-end funds trading at a double digit discounts that own mainly US equity portfolios - Central Securities (NYSEMKT:CET), General American Investors (NYSE:GAM), Boulder Growth & Income Fund (NYSE:BIF), Source Capital (NYSE:SOR), and Adams Diversified Equity Fund (NYSE:ADX). But there is no activist play in any of these.

High Income Securities Fund (NYSE:PCF) is another fund controlled by Bulldog that also has been transitioning more toward closed-end fund investing. I believe, at some point in the future, it is quite possible there may be a merger of SWZ with PCF. Both funds are currently very small. This would improve economy of scale and would lead to a significantly reduced overall expense ratio for the combined fund.

It is even possible that there could be a three-way merger in the future- SWZ/PCF/SPE. But SPE differs somewhat from the new proposed SWZ because it invests a large portion of the portfolio in SPACs, BDCs and other non-closed-end fund investments.

Normally, in my articles on closed-end funds, I give detailed information about a fund's industry breakdown, past performance, discount history etc. But, in the case of SWZ, this kind of analysis would be irrelevant since the fund will be changing entirely if the shareholder vote passes. In the unlikely event that the shareholder vote does not pass, I would look to exit SWZ until the Board decides what to do with the fund.

Company management should be positive for SWZ. Bulldog has a good reputation in the closed-end fund world as shareholder-friendly investment managers. They are well connected and highly experienced in closed-end fund activism.

One potential negative for SWZ is the cost of transitioning the portfolio out of Swiss equities. In July, the portfolio managers partially addressed this by selling a large private equity position in NovImmune SA in a private transaction for $5.78 million.

If Bulldog becomes the investment manager, they will sell the liquid portions of its Swiss investments in order to execute the new strategy. The remaining illiquid private equity positions are about 2.1% of the portfolio. The Fund plans to hold these positions for an indefinite period of time and wait for distributions from these investments.

It is hard to find a unique publicly traded security that provides a true hedge fund-like investment strategy and trades at a discount to net asset value. There is an ETF run by Saba Capital, Exchange Listed Funds Trust - Saba Closed-End Funds (BATS:CEFS), that uses an activist strategy, but it mainly focuses only on fixed income and the Saba ETF almost always trades at or near the NAV.

Unlike hedge funds, the new SWZ will provide daily liquidity and will not have any incentive fees. The upcoming 15% tender offer at 95% NAV will also provide some initial "alpha" even for investors who do not tender their shares.

Swiss Helvetia Fund, Inc.

Given the strong possibility of a stock market correction, the new SWZ will provide a good way to gain exposure to closed-end funds with a lower risk profile. It also provides good diversification for other more traditional investments. If the shareholder proposals pass as expected, I believe SWZ should provide good risk adjusted returns going forward. The upcoming 15% tender offer also provides a little "alpha" for shareholders.

SWZ has only moderate liquidity, so care should be taken in buying shares. If you trade out of a zero commission account, it may be worthwhile to split up the trade into smaller pieces to get better executions.

I am/we are long SWZ, SPE, PCF.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.