FMC Strategic Value Fund liquidation

dstone42

As previously noted on this board, FMSVX is being liquidated next month.
I invested some money in this small cap value fund some years ago, probably because I read some positive comments here. It has been run by First Manhattan Co and I don't think it even had a ticker symbol for awhile. I was enchanted by the idea that this New York investment firm was running a small fund for its clients and whomever else wanted to join in.

Surely they knew what they were doing and things would go well.

They did for a little while.

I plead guilty to not paying attention to how it has done lately: but it's only up 1.74% for the last year, - 2.65% for the last three years and +3.16% for the past five years. I would have thought those numbers impossible in the booming market we've seen.

The fund made a large cap gains distribution in December, is making another one now (payable Feb 6, who knows how much??) and is maintaining a CONSTANT SHARE PRICE of $20.

I called today to see how the liquidation process works. I could cash in now (at 20), or wait until the mid-February final demise. One factor in the final distribution amount is the cost of carrying out the execution.

But there's no rational basis to make a decision! How can a fund which holds equities maintain a constant price?
Unless it's gone to all cash.
In which case they should tell me.

It really seems strange to distribute cap gains right before a liquidation.

Lesson to be learned -- PAY ATTENTION to your holdings.
I'll not buy anything again which is so far under the radar that information is hard to find.

At least I think I made a little profit on it.

David

Ted

@MFO Members: Way to go, very consistent, 100 percentile YTD-15 Years.
Regards,
Ted

msf

dstone42 said:

But there's no rational basis to make a decision! How can a fund which holds equities maintain a constant price?
Unless it's gone to all cash.
In which case they should tell me.

It really seems strange to distribute cap gains right before a liquidation.

I think they did tell you. The prospectus supplement contains the usual boilerplate for liquidations:

In anticipation of the liquidation of the Fund, the Adviser may manage the Fund in a manner intended to facilitate its orderly liquidation, such as by holding cash or making investments in other highly liquid assets. As a result, during this time, all or a portion of the Fund may not be invested in a manner consistent with its stated investment strategies, which may prevent the Fund from achieving its investment objective.

They said they'd go to cash. That cap gains distribution is what one might expect right after they sold off virtually all their securities.

I think I've seen funds in rare cases say that they're reducing the management fees because they're really only managing cash leading up to the fund closure. But most funds seem to just chug along, collecting their fees for a virtual MMF. That strikes me as a good reason to get out sooner rather than later.

dstone42

@msf Thanks for the information. Sad to say, the representative I talked to on the phone didn't seem to know much, or wouldn't commit to much.

You're probably right about collecting fees to the last second. And charging the liquidation expenses to the shareholders after such miserable performance is like salt being rubbed into the wound.