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NEW YORK (Reuters) – Soros Fund Management LLC added Facebook Inc (FB.O), Apple Inc (AAPL.O) and Twitter Inc (TWTR.N), but trimmed stakes in Alphabet Inc (GOOGL.O) and Amazon.com Inc (AMZN.O) in the quarter through June, according to a regulatory filing on Tuesday.
Billionaire hedge fund manager George Soros speaks during a discussion at the Clinton Global Initiative’s annual meeting in New York, September 27, 2015. REUTERS/Brendan McDermid/File Photo
The family office of billionaire George Soros also bought stakes in AT&T Inc (T.N), Chevron Corp (CVX.N) and T-Mobile US Inc (TMUS.O) and divested stakes in eBay Inc (EBAY.O), Nvidia Corp (NVDA.O), Snap Inc (SNAP.N) and Paypal Holdings Inc (PYPL.O).
Soros Fund Management also dramatically boosted its shares in BlackRock Inc (BLK.N) – the world’s largest asset management firm, overseeing $ 6 trillion – by nearly 60 percent to 12,983 total shares in the second quarter.
Other notable adjustments included paring stakes in Netflix Inc (NFLX.O), Citigroup Inc (C.N) and Wells Fargo & Co (WFC.N), but raising its shares of Pandora Media Inc (P.N) and Salesforce.com Inc (CRM.N).
Soros Fund Management took share stakes in Facebook of 159,200 class A shares during the second quarter and 54,500 shares in Apple.
A number of prominent fund managers sharply cut their holdings in Apple only weeks before it became the first publicly-traded U.S. company to be worth more than $ 1 trillion.
Einhorn’s Greenlight Capital slashed its stake by 77 percent, while Philippe Laffont’s Coatue Management unloaded 95 percent. Advisory firm Diamond Hill Capital Management cut its stake by 27 percent.
Other big holders, including Sanders Capital and Adage Capital Partners, only trimmed small amounts in the second quarter.
Soros also rejigged his energy holdings, raising stakes in Devon Energy Corp (DVN.N) and Kinder Morgan Inc (KMI.N), while dissolving his stake in the VanEck Vectors Oil Services ETF (OIH.P) and cutting exposure to Canadian Natural Resources Ltd (CNQ.TO) and Williams Companies Inc (WMB.N).
Quarterly disclosures of hedge fund managers’ stock holdings, in what are known as 13F filings with the U.S. Securities and Exchange Commission, are one of the few public ways of learning what the managers are selling and buying.
But relying on the filings to develop an investment strategy comes with some risk because the disclosures come 45 days after the end of each quarter and may not reflect current positions. Still, the filings offer a glimpse into what hedge fund managers saw as opportunities to make money on the long side.
The filings do not disclose short positions, or bets that a stock will fall in price. As a result, the public filings do not always present a complete picture of a management firm’s equities holdings.
Reporting by Jennifer Ablan; additional reporting by Trevor Hunnicutt, editing by G Crosse
He was first diagnosed with bowel cancer in 2014, according to CNN, and a year later announced publicly that the cancer was terminal. Three weeks ago, he announced on Reddit that he was retiring from the critic side of his business, writing, “I’m retiring as a critic to spend whats left of my life sharing my love of gaming with my wife and all of you via co-op videos and streams.”
Bain’s wife, Gemma Bain, announced the YouTuber’s death on Twitter, saying, “Rest in Peace my Dearest Love John @Totalbiscuit Bain July 8, 1984 – May 24, 2018,” along with the poem “Love Constant Beyond Death” by Francisco de Quevedo.
Bain had over 2 million subscribers on his TotalBiscuit YouTube channel. Fans also left messages of support on Twitter and on his Reddit post announcing that he would no longer do game reviews.
FRANKFURT (Reuters) – European researchers have found that the popular PGP and S/MIME email encryption standards are vulnerable to being hacked and they urge users to disable and uninstall them immediately.
University researchers from Muenster and Bochum in Germany, and Leuven in Belgium, discovered the flaws in the encryption methods that can be used with popular email applications such as Microsoft Outlook and Apple Mail.
“There are currently no reliable fixes for the vulnerability,” lead researcher Sebastian Schinzel, professor of applied cryptography at the Muenster University of Applied Sciences, said on Monday.
“If you use PGP/GPG or S/MIME for very sensitive communication, you should disable it in your email client for now.”
The team had been due to publish its full findings on Tuesday but rushed them out after the news made waves among the community of encrypted email users that includes activists, whistleblowers and journalists working in hostile environments.
Titling the exploit ‘Efail’, they wrote that they had found two ways in which hackers could effectively coerce an email client into sending the full plaintext of messages to the attacker.
There’s no immediate suggestion that spy agencies or state-sponsored hackers have already used the technique to burrow into people’s emails.
The researchers have informed email providers of their findings, under so-called responsible disclosure, and it now falls to others to establish whether the exploits can be replicated.
In the first exploit, hackers can ‘exfiltrate’ emails in plaintext by exploiting a weakness inherent in Hypertext Markup Language (HTML), which is used in web design and in formatting emails.
Apple Mail, iOS Mail and Mozilla Thunderbird are all vulnerable to direct exfiltration, they said.
A second attack takes advantage of flaws in OpenPGP and S/MIME to inject malicious text that in turn makes it possible to steal the plaintext of encrypted emails.
The vulnerabilities in PGP and S/MIME standards pose an immediate risk to email communication including the potential exposure of the contents of past messages, said the Electronic Frontier Foundation (EFF), a U.S. digital rights group.
In a blog post, the EFF recommended that PGP users uninstall or disable their PGP email plug-ins while the research community evaluates the seriousness of the flaws reported by the European research team.
It also said that users should switch for the time being to non-email-based secure messaging apps such as Signal for sensitive communications.
Germany’s Federal Office for Information Security (BSI) said in a statement there were risks that attackers could secure access to emails in plaintext once the recipient had decrypted them.
It added, however, that it considered the encryption standards themselves to be safe if correctly implemented and configured.
“Securely encrypted email remains an important and suitable means of increasing information security,” it said in a statement, adding that the flaws which have been discovered can be remedied through patches and proper use.
PGP – short for Pretty Good Privacy – was invented back in 1991 by Phil Zimmermann and has long been viewed as a secure form of end-to-end encryption impossible for outsiders to access. Zimmermann is co-founder and chief scientist of Silent Circle, an encrypted communications firm.
PGP has in the past been endorsed, among others, by Edward Snowden, who blew the whistle on pervasive electronic surveillance at the U.S. National Security Agency before fleeing to Russia.
PGP works using an algorithm to generate a ‘hash’, or mathematical summary, of a user’s name and other information. This is then encrypted with the sender’s private ‘key’ and decrypted by the receiver using a separate public key.
To exploit the weakness, a hacker would need to have access to an email server or the mailbox of a recipient. In addition the mails would need to be in HTML format and have active links to external content to be vulnerable, the BSI said.
It advised users to disable the use of active content, such as HTML code and outside links, and to secure their email servers against external access.
Editing by Matthew Mpoke Bigg
Please Note: This article was first published for Income Idea subscribers on Thursday along with additional analysis and implementation ideas. All data in this article is as of 5/2/2018.
I have generally been a fan of actively managed funds where the management team has the flexibility to invest in a variety of asset classes where they best see fit, in line with the investment policy statements laid out in the prospectus documents.
For those reasons, many of my client portfolios will typically include a “strategic income” fund of some sort for fixed income investors. This could be either an open end mutual fund, ETF or a unit investment trust (‘UIT’).
Such fund typically outperform over longer periods of time however you do run into the issue where generally speaking “strategic” = “junk bonds.” This applies to both taxable and tax free fixed income.
Where these funds are great however is that during flat or uncertain fixed income markets, by investing in go anywhere fixed income funds you are giving up that investment decision to the portfolio manager whom you believe has a better read on the market and more importantly is able to find those opportunities which neither you or I have access to as individuals.
Perhaps the most well known of such funds is the PIMCO Dynamic Credit Income Fund (PCI) which I wrote about in “PCI – Not For Me.” My issue with the fund was that as great as it is performance wise there is a very hefty price, the lack of transparency around certain aspects and the exceptionally high leverage and fees.
Another fund that fits this bill and sponsored by one of my favorite managers is the Guggenheim Strategic Opportunities Fund (GOF). While I have looked at it a number of times for myself, I have never written about it or invested in it myself for the simple reason that I do not buy CEFs at a premium.
I did have a number of readers ask me about the fund and that is why we are taking a deep dive into the fund today, particularly as it may be just the recipe for the uncertain fixed income markets of tomorrow.
- Sponsor: Guggenheim
- Managers: Guggenheim Partners Investment Management, LLC
- AUM: $ 619 million in investment exposure, $ 511 million common assets
- Historical Style: Diversified Fixed Income, predominantly below investment grade
- Investment Objectives: The Fund seeks high total return through investment in US Government and agency issued fixed income debt and senior equity securities, corporate bonds, mortgage and asset backed securities and through utilizing an options strategy
- Number of Holdings: 377
- Current Yield: 10.44% based on market price, monthly distributions
- Inception Date: 7/27/2007
- Fees: 1.8%
- Discount to NAV: 8.78% PREMIUM
Sources: CEF Connect, Guggenheim Website, and YCharts.
The Sales Pitch
For whatever reason the fund does a horrendous job on its website and in its marketing material to set the case for investing in the fund.
On one hand, they do not need to as the fund only raises capital at its IPO or during follow up offerings but still…. why not put up a few graphics or paragraphs outlining why investors should consider it?
Since the fund fails to do that job, I will attempt to.
As I stated in the introduction, I am a fan of go anywhere investments, especially when they can give you uncorrelated investment exposure.
A Closed End Fund structure further lets the fund use leverage and due to its structure, management does not need to have money allocated to cash for any redemptions which occur with open end mutual funds.
The CEF structure also lets you, in most cases, to purchase funds below their net asset value further generating alpha. (Although this has generally not applied to GOF.)
In the fund’s semi-annual report the fund manager does point out that “thorough research and independent thought are rewarded with performance that has the potential to outperform benchmark indexes with both lower volatility and lower correlation of returns as compared to such benchmark indexes.” Source: GOF Semi-Annual Report
The Alpha/Fund Strategy
Unlike in an exchange traded or an open end index fund which follow an underlying index with their generally transparent index methodologies, no such things exist in go-anywhere, actively managed funds.
As such, investors generally rely on the information provided in the prospectus for the fund’s general investment guidelines.
As a true “strategic income” fund, the fund may invest without any limitations in fixed income securities rated below investment grade, aka junk bonds.
The fund may further invest up to 20% in non-US dollar denominated securities, including up to 10% in emerging markets.
What makes the fund relatively unique is that it may invest up to 50% in equities and up to 30% in fund of funds or pass through securities.
Source: GOF Website
One of my personal attraction points to Guggenheim is their strong position in asset backed securities, particularly aerospace.
Even though this is an actively managed go-anywhere fund, it is not overly concentrated. The top 10 holdings make up just 7.98% of the fund.
Source: Guggenheim Website
Looking at the fund more broadly, even though it can allocate up to 50% to equities, the fund is currently 80% allocated to fixed income with just a bit over 15% allocated to common stocks.
Source: Guggenheim Website
Breaking it down further shows us that more than half of the fund is allocated to floating rate bank loans and ABS, or asset backed securities. In general, these are below investment grade.
Source: Guggenheim Website
High yield bonds add another 14% while investment grade corporate bonds are just under 5% of the fund.
This obviously shows up in the credit quality. More than 90% of the fund is either rated at or below BBB or not rated. More than 70% is either below investment grade or unrated.
Source: Guggenheim Website
Unfortunately due to the nature of the fund and the fund’s decision, Guggenheim does not publish some common statistics such as the average effective maturities and durations. From the transparency side this is a disservice to investors and I hope the sponsor changes it in the future.
The only reference to duration which I found was in the semi-annual report.
Source: GOF Semi-Annual Report
Guggeneheim does disclose that the fund had an average duration of about .7 years which is quite good. We do not however know whether that was leverage adjusted or not.
In either case, what this means is that for a 1% rise in interest rates, the fund’s NAV should be expected to decline by just .7%. If we have to adjust for leverage it would be closer to 1%.
The opposite is also true if interest rates decline.
Looking at the risk data we can find a 5 year beta of .997. This implies that the fund has essentially been as volatile as the underlying markets.
The maximum draw-down which the fund experienced was 54.69%, likely during the closed end fund sell off in 2007/2008 when the leverage markets dried up and funds were forced to liquidate.
Looking at the risk adjusted metrics, the fund has achieved a 10 year Sharpe ration of .7935 and a Sortino ratio of .6941. While these are not mind blowing… for a closed end fund of this nature it is quite good.
Like most closed end funds, the Guggenheim Strategic Opportunities Fund(GOF) uses leverage.
The fund uses two primary methods for obtaining leverage.
First, the fund uses reverse repurchase agreements whereby it pledges its investments through transactions creating leverage.
As of November 2017, the fund had $ 58 million in reverse repurchase agreements with its syndicate of banks on which it paid an average weighted interest rate of 1.85%. These costs would be higher today.
Source: GOF Semi-Annual Report
The second source of leverage is a traditional credit facility with a lender.
GOF has an $ 80 million credit facility on which it pays a borrowing rate of .85% over 3 month LIBOR. On this line as of the end of November the fund had just $ 2 million outstanding as it had paid down the majority of the credit facility.
Source: GOF Semi-Annual Report
What is important to note here is that most of the CEF leverage which we have looked at is typically a spread of .7% to 1.2% over 1 Month LIBOR. In the case of GOF it is 3 month LIBOR which is a higher rate.
While generally this was a small spread, the gap is now close to .5%! As such, the fund’s current borrowing costs on this credit facility would be over 3%!
Fortunately it seems that Guggenheim is employing some smart people to run the fund, namely Scott Minerd who has been quite critical of the markets. As such, the fund has been deleveraging as of late.
Source: GOF Semi-Annual Report
The fund is currently distributing a market price distribution yield of 10.44% and is trading at a PREMIUM of 8.78% to its NAV, or net asset value.
Source: CEF Connect
Over the previous year the fund has continued to trade at premiums although it did come very close to parity earlier this year.
Generally speaking, the Net Asset Value has failed to grow beyond its initial IPO even though there is a growth component. THIS IS QUITE CONSISTENT with the findings of the distribution analysis. A few good years bail out many bad years however there has not been meaningful growth.
Looking back over the fund’s lifetime, we can see the fund has generally traded at a premium over the previous 7 years or so however did trade at a discount in 2015/2016 and during the financial crisis when it was trading at close to 30% discounts to NAV. This is once again consistent with “junk bonds.”
Performance wise, year to date the fund has been sold off with most other CEFs. The fund is up a mere .21% on a total return basis accounting for the distribution. The price per share is down 3.27% while the NAV is down 3.04%.
Do note at the price vs NAV action early this year when the fund was thrown out and decreased 9%. This is a risk to buying a fund which is trading at a premium as any sustained sell off turns premiums into discounts, adding more misery to the underlying losses.
Over the previous year the fund did give investors a 10.28% total return. This came strictly from the distribution. The underlying price per share is down .6% while the net asset value fell 2.89%. Over distributed? AHA!
Over the last 3 years the story remains the same. The fund presented investors with a 36.17% total return while the price fell 2.9%. The underlying NAV declined 2.5%. A good 2016 bailed out the fund’s track record during this time.
Over the previous 5 years we have precisely the same story. The total return was all about the distribution. The underlying price per share declined 9.28% while the NAV declined 8.99%.
Going back 10 years would have you purchase the fund near the lows of the financial crisis. AS such, the fund has achieved phenomenal results. The fund would have a 270.8% total return (if reinvested). The price per share increased 24.11% while the NAV grew just 8.5%.
Since inception the numbers are not as good. The total return declines to 233.8% with a 4.38% price per share gain and an essentially flat NAV.
The moral of the story, the fund did a PHOENOMINAL job coming out of the financial crisis but it was quite volatile and since 2011 or so, has not grown its NAV in the greatest bull market yet.
Should have? Want signs of over distribution? Plain vanilla (AGG) and (MUB) grew their NAVs during this time.
To put the fund into perspective, we will take a look at the fund against a number of competing products, both levered and unlevered.
As far as “go anywhere” type funds, there are a number of competing closed end funds such as the BlackRock Multi-Sector Income (BIT), the PIMCO Dynamic Credit Income (PCI), and the DoubleLine Income Solutions (DSL) funds. PCI is managed by the PIMCO team and the DoubleLine fund is a representation of the famed Jeffrey Gundlach’s ideas.
I also wanted to take a look at how it does against a covered call fund such as the BlackRock Enhanced Global Dividend fund (BOE).
Lastly we can take a look at two unlevered open end funds, the Fidelity Strategic Income (FSTAX) and the PIMCO Total Return (PTTAX) funds.
Year to date on a total return basis we can see that generally speaking, GOF has lagged for most of the year and was actually the most impacted during the sell off in February. It has since rebounded and comes in the middle of the pack. For the year however (PCI) and (DSL) have been the best performers.
If we look over the last year we can see (GOF) has beat most of its peers coming in behind PCI. Interestingly (BIT) lead the way until the sell off this year. Also of note, even though also PIMCO managed, the open end Total Return Fund was the worst performer.
Over the last three years we have a similar story. PCI lead the way followed by GOF, DSL and BIT.
The equity focused BOE lags and is followed by the two open end funds which were quite stable. In either case, the Fidelity fund handily outperformed the PIMCO Total Return fund.
Looking back 5 years we essentially have PCI and GOF leading the way, followed by (BIT). The high performing DoubleLine fund however comes in at the bottom of the CEF pack simply due to its horrible performance in 2015.
Once again it shows the importance of risk management. It is not as import as to how much you make, and it is more important to focus on how much you DON’T LOSE!
This is ever so important for buy and hold investors.
To get a 10 year number we only have the (GOF) and (BOE) closed end funds along with our two open end funds. This is critical but we do not have any idea how (PCI), (BIT) and (DSL) would perform during a financial crisis.
As we can see, the two closed end funds were decimated during the crisis. While GOF recovered, BOE never did. In fact, the plain vanilla open end Fidelity income fund would provide better total returns than an equity CEF fund.
Overall, GOF has been a good fund especially if we consider that it has been generally less levered than its peers. More importantly from the risk management perspective the fund is leading the way in delevering while its peers are increasing their leverage to maintain the distribution level.
Guggenheim is an experienced manager and if you want to capitalize on and follow Scott Minerd, (GOF) is a way to do so. Here is a good article on Scott Minerd’s recent thoughts.
From the pricing side, it is very tough for most closed end fund investors I know of to justify purchasing it today, or even keeping it if you already own it.
Over the previous year the fund traded at a premium to NAV of as low as .62% to as high as 11.33%.
Source: CEF Connect
As we can see, the current 8.78% premium to NAV is quite expensive over EVERY measured time period and the Z-Score solidifies that. The right time to buy it would have been earlier this year when it was trading at near parity.
Source: CEF Connect
Overall it is certainly a peculiar time for funds like GOF, PCI and DSL.
I think a great way of thinking about them is like dating a super model. Yes, they look really pretty and you have a great time dating and you get lots of envious looks. But are they the people you believe would end up being terrific soul mates to live together and raise a family?
GOF, PCI, DSL and other high yield junk bond funds have certainly become the “popular guy/gal” and people are paying premiums for them. At the same time, high quality funds and munis have been left at the alter.
Yes, they have performed exceptionally well in a terrific bull market for both fixed income and equities, but so did the housing market in the early 2000s.
The “crazy” part comes in where on one hand we see premium prices for those funds, yet the underlying fundamentals are either turning or completely falling apart such as the distribution coverage with GOF and others.
Of course, I once again have to remind, a distribution is not a dividend and you have to take an underlying look at how the fund is doing.
Bottom line, this is certainly a fund worth owning, but perhaps when the prices are quite a bit better and we have another opportunity to buy in ONCE the tornado comes through.
In the mean time, the BlackRock Multi-Sector Income Fund (BIT) will let you play in the same space at a far lower cost, a 10% discount versus an 8.78% premium and while I have not looked at it yet, the underlying distribution coverage can’t be as bad as (GOF)?
For more information on the fund, please visit the fund’s website at Guggenheim – GOF.
For more reading on the mentioned funds, please take a look at:
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Video: Barcelona: Bye Microsoft, hola Linux
LinuxQuestions, one of the largest internet Linux groups with 550,000 members, has just posted the results from its latest survey of desktop Linux users. With approximately 10,000 voters in the survey, the desktop Linux distribution pick was: Ubuntu.
While Ubuntu has long a been popular Linux distro, it hasn’t been flying as high as it once was. Now it seems to be gathering more fans again. For years, people never warmed up to Ubuntu’s default Unity desktop. Then, in April 2017, Ubuntu returned to GNOME for its default desktop. It appears this move has brought back some old friends and added some new ones.
An experienced Linux user who voted for it said, “I had to pick Ubuntu over my oldest favorite, Fedora. [That’s] Simply based on how quick and easy I can get Ubuntu set up after a clean install, so easy with the way they have it set up these days.”
http://www.zdnet.com/article/the-most-popular-linux-desktop-programs-are/, followed closely by antiX. With either of these, you can run a high-quality Linux on PCs powered by processors as old as 1999’s Pentium III.
If you want to buy a computer with pre-installed Linux, the Linux Questions crew’s favorite vendor by far was System76. Numerous other computer companies offer Linux on their PCs. These include both big names like Dell and dedicated small Linux shops such as ZaReason, Penguin Computing, and Emperor Linux.
Many first choices weren’t too surprising. For example, Linux users have long stayed loyal to the Firefox web browser, and they’re still big fans. Firefox beat out Google Chrome by a five-to-one margin. And, as always, the VLC media player is far more popular than any other Linux media player.
For email clients, Mozilla Thunderbird remains on top. That’s a bit surprising given how Thunderbird’s development has been stuck in neutral for some time now.
There was, however, one big surprise. For the best video messaging application the winner was… Microsoft Skype. Now, Skype’s been available on Linux for almost a decade, and recently, Canonical made it easier than ever to install Skype on Linux. But, still, Skype on Linux?
Jeremy Garcia, founder of LinuxQuestions, thought the result might have come about because: “Video Messaging Application was a new category this year and participation was extremely low. Additionally, Secure Messaging Application was broken out into a separate category that had higher participation and resulted in a tie between Signal and Telegram.”
Of course, it’s also possible that even passionate Linux people can like a Microsoft product. After all, Microsoft now supports multiple Linux distributions on its Azure cloud.
In an interesting interview with Tsunekazu Ishihara, the CEO of The Pokémon Company, he talks about his surprise at the popularity of Pikachu and that he’s a big fan of the updated Exeguttor in Pokémon Sun and Moon.