APRIL 2017

CAPITAL INVESTMENT FUND

  • +0.11% (Class A)
  • +0.17% (Class F)

OPPORTUNITIES FUND

  • 1.45% (Class A)
  • 1.49% (Class F)


I thought this would be a good time to walk through a transaction that we are about to exit in both our Investment Fund and our Opportunities Fund that I found interesting.

Approximately one year ago, Sirius XM (SIRI) announced a bid to purchase Sirius XM Canada (XSR) for consideration of cash and shares.  We chose to establish a position in this transaction because the spread between the market price of XSR and the bid by SIRI was large enough to warrant an investment.  The complication in this deal was that it had to be approved by the Canadian regulator (CRTC) in order to close, and frustratingly, the deal was delayed twice (Q4/2016 and again in Q1/2017) as they went through their analysis of the transaction.  During this time, the spread between the market price of XSR and the purchase price from SIRI widened, as several market players bailed out fearing the CRTC wouldn’t approve.  In April, the CRTC announced their approval and we are now within days of the announced transaction closing.

This is a great example of a trade that was used in both of our funds.  In our Opportunities Fund, where we take more risk for higher expected returns than the Investment Fund, we went long XSR.  The thesis being we get the upside on SIRI equity with the downside protection of the cash offer.  In our Investment Fund, where we take less risk and remain market neutral, we went long XSR and short SIRI.  A trade which locks in the spread between the two, assuming the deal closes.

Upon closing, this will financially work out as expected, with the Opportunities Fund trade structure paying off larger than the Investment Fund structure due to the upside optionality from not shorting SIRI, and the SIRI share price appreciating. Both strategies will have a profitable outcome.

Sincerely,

Jai Hawker

Trout Taylor