The key to
successful value investingis to find investments that are
priced below their intrinsic value. Yet while many experts
claim to pick stocks based on value, one pair of money
managers can show how the investments they select for their
clients actually do cost less than they're truly worth.
With hundreds of value-based mutual funds available to
investors, it's rare to run across one with a truly novel
approach to value investing. But the RiverNorth Core
Opportunity Fund, managed by Patrick Galley and Stephen
O'Neill, stands out from the crowd thanks to its willingness
to invest in securities that few others feel comfortable
buying.
The secret to value success
The RiverNorth fund uses what's known as a
tactical asset allocationmodel, which means that rather
than dividing up the fund's money by fixed percentages into
particular types of stocks and bonds, the portfolio managers
have discretion to shift more money into investments they
believe have better potential. The fund gives the managers
discretion to invest 40%-80% in equities and 20%-60% in fixed
income products.
The unusual thing about the RiverNorth fund, though, is
the investments it chooses to follow its asset allocation
strategy. Rather than picking stocks, the fund managers
search for
closed-end fundsthat are trading at an irrational
discount to their net asset value. If they can't find a
bargain closed-end fund, then the managers invest in sector
ETFs to minimize costs. But that doesn't happen very often;
as of June 30, more than two-thirds of the portfolio was
invested in closed-end funds.
What the fund owns
A look at the RiverNorth fund's recent portfolio gives
you some ideas of the bargains they're finding. Here's a
short list:
Closed-End Fund
Current Discount to NAV
Stocks Held Include:
Royce Value Trust (RVT)
(16.5%)
Ritchie Bros. Auctioneers ,
AllianceBernstein
ASA Limited (ASA)
(8.3%)
Barrick Gold (NYSE: ABX),
Goldcorp (NYSE: GG)
SunAmerica Focused Alpha Growth (FGF)
(16.5%)
McDonald's (NYSE: MCD), JPMorgan
Chase (NYSE:JPM),
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