By Malcolm Berko
Dear Mr. Berko:
My broker is pushing a stock called Golub Capital and trying to sell me 700 shares. I don’t like the sound of the name, but he is pushing so hard that I’m about to tell him to “stuff it.” He’s also pushing something called the Collar Fund, which involves options. It’s difficult for me to understand, but he wants me to invest $20,000. My son likes the guy and told me to give him a chance. Please advise.
N.R., Ann Arbor, Mich.
Dear N.R.:
Last April, Wells Fargo and UBS took Golub Capital public (GBDC – $13.95) with an IPO of 7.1 million shares at $14.50, raising $96 million after fees, perks and the usual usurious lawyer’s lucre. Originally, Wells and UBS planed to sell 8.2 million shares between $15 and $16, but the demand wasn’t there.
GBDC is a business development company, founded in 1994. It has $4 billion under management, a team of 48 advisers and is a leading senior lender for middle-market ($50 to $100 million) leveraged buyouts. And according to Reuters, GBDC was tops in its field based upon the number of deals and deal size.
Few civilians have heard of GBDC, even though it has offices in New York, Chicago and Atlanta. It has been named “Middle Market Lender of the Year” in 2008 and 2009 by Buyouts Magazine, as well as expansive kudos from other industry periodicals.
GBDC’s impressive list of assets will allow the company to pay a 31-cent quarterly dividend in June and, I suspect, consecutively higher quarterly payouts for the foreseeable future. Management is conservatively aggressive and, during the last 15 years, has made a ton of money just using old-fashioned common sense that measures value, future potential and marketability.
I understand your caution so rather than buying 700 shares consider a 200-share purchase. I suspect by this time next year, you will be glad you did because I think GBDC has the potential to trade in the low $20s.
The Collar Fund (COLLX – $10.16) is unique among mutual funds because it limits the risks of owning stock by creating upper and lower boundaries around its portfolio no matter how much the stock market rises or falls. This fund is not for assertive investors who seek aggressive gains, but it is suitable for investors who wish for modest returns and limited risks. So its two key benefits are wealth preservation and low volatility, which is accomplished by the use of stock options.
Here’s how it works: A stock is bought at $100 per share, and an option is sold by the fund to an investor for $70, giving the buyer the right to purchase 100 shares of that stock at $110. Then, with the proceeds from that option sale, the fund buys an option for $70, giving the fund the right to sell 100 shares of the stock at $90. So no matter how much that stock fluctuates while it is “collared,” the loss or gain is limited to $10 or 10 percent. And in this manner COLLX “collars” its entire portfolio.
A conservatively managed collar fund should, over a 10-year time frame, produce an average annual total return of 5 percent to 8 percent. Not sufficient to set the world aflame, but good enough to suggest that COLLX could be compared to a triple A rated bond for safety and income. And good enough to recommend that a conservatively managed account would do well to have a portion of its money in a collar fund. It’s a no-load equity, and I’ve been pleased with its performance in my IRA.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate Web site at www.creators.com. © 2010 Creators Syndicate Inc.
