Today, MoneyShow.com hears from Kevin Shacknofsky about strategies for capturing growth and dividends in two funds he manages, as well as the reasons he’s invested in a few specific holdings.
Kevin, I was looking at both of these. I notice they both hold domestic as well as overseas equities. So maybe you could start today by telling us the distinctions between the two, and what are the objectives?
Kevin Shacknofsky: Sure. They both are global funds, and they are both closed-end funds. The Alpine Total Dynamic Dividend Fund is a listed, closed-end fund, and so is the Alpine Global Dynamic Dividend Fund.
They both offer what we think is a very attractive 12% yield—which in this low interest rate environment, we think, it’s very attractive to investors.
The way we generate that yield is quite interesting. In each of these funds, we run three different strategies. One strategy is investing in dividend-paying stocks that have good growth, so you have growth and earnings and growth in dividends. Another strategy we play is good value stocks, which are very attractive value stocks with good dividends and a catalyst for that value to grow.
Finally, what we call our "secret sauce" is our dividend capture strategy, where a third of the fund, we would take two dividends. So we will buy a dividend before its ex-date, sell afterwards, and then generate multiple dividends in the same pool of money.
What we target—when possible, when it’s advantageous—is to hold that dividend stock for 61 days. And then you were able to generate a lower tax rate on that dividend, because if you hold a stock for 61 days you only have to pay a qualified dividend rate of 15%.
Now, the Alpine Total Dynamic Dividend Fund and Alpine Global Dividend Fund are two different objectives. For the Global Fund, we target to get as much as possible—close to 100%, when it is safe to do so—to get 100% of that dividend qualified.
With the Total, we try to be a bit more flexible, but more opportunistic. We don’t have any obligation to get the qualification, but we will do it when we see it. We are able to do it in a manner that generates a good total return.
The other main two differences between the two funds are that AOD is a $1 billion fund and AGD is about a $150 million fund. Because of the different sizes, we are able to invest in different liquidity objectives; so we like them all to be capped in our approach. We are very opportunistic in our approach, but because of liquidity we do not like being in a stock that takes more than three days to get out of.
With the smaller fund, we are able to invest in smaller liquidity and small-cap names. It has a little bit more volatility, but also more total return opportunity, as you are able to be in the higher growth opportunities.
Kate Stalter: So for the most part then, are they pretty different positions held in each of the funds, or is there any overlap?
Kevin Shacknofsky: There is probably about 30% to 40% overlap at times. The main difference is AOD would probably be in large-cap companies because of that liquidity requirement, and AGD has more small-cap exposure.
AGD also is able to be more in emerging-market names, because there is low liquidity in emerging markets. So that is probably the two main differences. There is more small cap and more emerging market in the smaller fund.
Kate Stalter: Can we talk a little bit about some of the specific holdings within each, and why you like these?
Kevin Shacknofsky: Sure. So, we are a top-down and bottom-up investment approach. We identify themes and trends in which we see great investment opportunity, and then we go do the fundamental analysis on funds, the best opportunities where we can leverage those themes.
A name which we own in both is Yum! Brands (YUM). This is a play on the theme of the emergence of the global consumer, especially in emerging markets. So as an operator of fast food restaurants, which are dramatically growing in emerging markets, it is creating dramatic growth.
Fast food is in some ways one of the most attractive growth opportunities in emerging markets, because as GDP per capita reaches a level, consumers definitely want to branch out and eat out instead of only eating at home. Fast food is a way you can do this in an affordable manner.
Yum has one of the oldest and broadest footprints in China; it is generating a lot of growth. They are also just starting their journey in India. It is creating extreme opportunities for them, and it is really pushing the stock hard.
They are also turning around the Taco Bell franchise, which had problems in the US last year, and they have now come out with a new menu, which is really gaining a lot of traction. This has definitely been one of our better performers this year.
Now, the example of us playing the other trend is in Coach (COH), which is more on the luxury-end side than these emerging markets. There is a lot of wealth being generated, and these nouveau riche are definitely chasing products like Coach, which is also expanding dramatically in emerging markets. So that has done well.
So those are the examples of how we play that emerging-market theme, both on the low end and on the high end. These are names we have in both funds.
An example of stock we only own in AGD is a company we own in Brazil called Brasil Insurance. This is basically an insurance broker like Marsh & McLennan (MMC), but only in Brazil, which is a highly fragmented market.
They are the biggest player and they are rolling up and buying out all the smaller players and building market share. This is a very low-risk growth opportunity, even as the penetration of insurance products are growing in the market. You are getting both the M&A growth and the organic growth.
Its stock is doing phenomenally well. It is cheap stock, and you are getting very attractive growth. This is because of its low liquidity, as a name we only have in a smaller fund.
I can think of an example which we only have in the larger fund is McDonald’s (MCD), which is a similar story to Yum. It is also a play on that emerging-market consumer, and because of its dramatic liquidity, we can put that in a larger fund, whereas in the smaller fund we could go more direct and more targeted smaller growth opportunities.