Shareholder revolts

I love closed-end fund shareholder revolts, when you get two different ballots, and one of them is all about how management sucks. Such a refreshing change from ballots issued by management, which typically say that management is wonderful and that we should therefore vote as management desires.

(If you do not know, a closed-end fund is a form of mutual fund. Most trade in bonds. The biggest difference between CEFs and conventional funds, the kind most people think of when they hear the term ‘mutual fund,’ is that conventional funds are open-ended. All their trading is between the investor and the fund. Thus, when you buy shares, they are created; when you sell (redeem) them, they are annihilated. In a closed-end fund, shares are not created or annihilated. They are traded between buyer and seller, neither of which is the fund. I have given lengthy criticisms of conventional funds in the past, and probably will do so again, just because they need frequent slappage.)

What I love even more is when the rebels’ complaint is that the fund is going to be kept around two years before liquidation, and should be instead liquidated immediately. I guess I should have bothered to read their semi-annual reports, or perhaps this liquidation is a more recent development. In any case, it’s good to see something other than the standard blind endorsement of management. Usually the most revolutionary thing on the ballot is some proposal put forth by an environmental group or something, demanding greater accountability or constraints on executive pay. Management always votes against all such proposals, claiming that they are already doing more than what the proposal would require. You can believe them if you like; I don’t.

So. What to do?

In my case, first I go vote for the revolt. If I were keeping the shares, I might stick around to care who wins. However, if the fund is going to be liquidated, I don’t wait to be paid out. I slap trailing stop sell orders on my shares. Whatever drama they’re going to have, they can have it without my money. I can surely find a better job for my money than a fund that is being managed toward a liquidation date.

This one (KMM) was fun. It was one of my lowest yielding CEFs, and I had a capital gain to boot. Yes, please.


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