The full text of the letter follows:
Fellow NDP Shareholders:
We are writing as fellow shareholders to express our dissatisfaction with the Fund’s managers and the Board, and to announce that we have determined to vote “NO” on this merger. In our view, management’s inability to create value for shareholders has been clearly demonstrated over the past seven years, and we view this proposed merger as a last-ditch effort to buy more time to run a risky strategy that has dramatically underperformed peer funds and the index. Instead of pursuing this merger, we urge the Board to convert to an open-end fund or liquidate the assets, which we believe would provide substantial value realization to shareholders, by eliminating the Fund’s deep discount to its net asset value (“NAV”). Were the Board to pursue this shareholder-friendly strategy, as of the writing of this letter, shareholders would see immediate gains of approximately 30%.
Destruction of Value
Given the nature of its mandate in energy investments, one would have expected NDP to generally track the ups and downs of both the broad energy index (as represented by the
While an investment in the energy sector, as represented by the XLE, would have been a bumpy ride over this time period, after reinvesting dividends it would have been essentially flat, up 0.3%. MLPs have performed somewhat worse than the sector as a whole, but the high dividends have allowed investors to make back much of their losses; an investor in the Alerian MLP Index tracking fund (AMLP) would be down only about 23% over the same period. By contrast, NDP has underperformed dramatically. An investment in NDP over the same time horizon, with dividends reinvested, lost a staggering 80% of capital.
The difference is stark. If an investor had purchased
Fund | Total Return | Value of | Fees Paid | |||
XLE | 0.3% | |||||
AMLP | (-23%) | |||||
NDP | (-80%) |
The blame for this egregious underperformance lies with squarely with the Fund’s management. As stewards of our capital, they have a fiduciary duty to make prudent investments seeking to limit the Fund’s risk and grow its value over time. Unfortunately, that has not happened. Assets for NDP peaked around
Investment Strategy Drift
We are particularly concerned by NDP’s proposed change in focus towards renewable and power infrastructure companies. If the Fund’s portfolio managers are unable to add incremental value over a benchmark in the sector of their “expertise,” why would we expect that would change by venturing into a sector that is new and unfamiliar to them? After incinerating 80% of investors’ money failing to perform in the fossil fuels space, management has seemingly decided to move on to the next hot sector, chasing green investments at a time of historically high valuations, perhaps in hopes of making back their massive losses or at least keeping capital locked up for longer in order to charge more fees.
The Fund’s closed-end structure is, in theory, supposed to insulate management from the performance pressures faced by open-end vehicles such as mutual funds and actively-managed ETFs that are forced to chase fads to keep and raise capital. Without having to worry about investors fleeing, management should be free to focus on making judicious, out-of-favor investments in unloved sectors with its permanent capital and patiently waiting for their value to be realized at a substantial profit. Indeed, we think that now seems to be a reasonable time for that, with traditional energy sector assets at historically cheap valuations and many high-quality MLPs yielding north of 8-10%. However, the Fund instead wants to diversify away from this sector at current valuations, presumably because green and alternative energy companies are currently more popular and easier to market and gather new assets for. We believe this is an attempt to “put lipstick on a pig” down 80% and spin a new story to entice new investors into a fund that may continue to underperform going forward. It seems that investors have received all the drawbacks of a closed-end fund’s illiquidity, discount to NAV, and inability to withdraw capital, in addition to the drawback of an open-end fund’s underperformance, trend-chasing, and asset-hoarding nature, without the benefits of either structure.
Indeed, we think that events since the proposed merger announcement on
Discount to NAV
The Fund’s presentation and FAQ states that the ostensible reason for this merger is that its “research suggests that funds with more exposure to global utilities and infrastructure which we define as renewable and power infrastructure tend to trade closer to NAV.”
We disagree strongly with this assessment. We believe that the Fund’s discount reflects the market’s accurate view of management’s poor track record, and therefore the market is rationally discounting the Fund’s expected future underperformance. It is our belief that current management is incapable of closing this gap by changing its investment strategy. We believe that the best chance of closing this discount to NAV and recovering maximum value for shareholders is for the Fund to liquidate its assets and return the entirety of its capital to shareholders.
For these reasons we intend to vote “NO” on the proposed merger. This is our way of telling the Fund’s management that we have had enough value destruction and will not allow any more.
We expect that the Fund’s management will attempt to divert attention away from its poor track record by calling Aristides a “vulture” that is somehow trying to advance its own self-interest at the expense of other shareholders. This is simply not true; we are value investors seeking to ensure an outcome that fairly, equitably, and profitably creates value for us and for all shareholders, rather than simply allowing management to continue lining their pockets to the detriment of all shareholders.
Sincerely,
Disclosure: As of
Investor & Media contacts:
info@aristidescapital.com
(419) 214-0412
InvestorCom
(203) 972-9300
info@investor-com.com
___________________
1 From
Graphs accompanying this announcement are available at:
https://www.globenewswire.com/NewsRoom/AttachmentNg/9871b2cd-2ca1-4e7a-a720-774c185e4b31
https://www.globenewswire.com/NewsRoom/AttachmentNg/b8f421e5-165a-4b67-be86-0cf4ce60bda8
NDP Has Vastly Underperformed Industry Benchmarks
Since inception, an investment in NDP has lost 80% of its value (assuming dividend reinvestment), dramatically worse than energy industry ETFs such as XLE (+0.3%) or AMLP (-23%). [source: Bloomberg]
NDP’s Board Has Proposed Chasing the Performance of a Clean Energy Bubble
After a massive run, valuations in the clean energy space are excessive. Now is a terrible time to change part of the Fund’s investment mandate into clean energy, as NDP’s management has proposed. [source: Bloomberg]
2021 GlobeNewswire, Inc., source