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Income Value Account

Income Value Account

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Account Objective

The objective of the Account is to generate income and capital gains with modest volatility by constructing a well-diversified Income Value Portfolio (max 5% weighting per position) composed of dividend paying common shares, debt, convertible debt, heavily hedged convertible arbitrage positions, and capital structure arbitrage and takeover arbitrage positions.

Options may be used but solely to protect the invested capital, enhance the price at which securities are acquired, or enhance the price at which securities are sold.

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Portfolio Investments

 

 

Corporate Debt:

Corporate Convertible Debt:

Dividend Paying Equity:

Hedging Strategies

 

Convertible Arbitrage:

Yield Example:

Buy $100,000 bonds 5% company D Sell $80,000 shares company D
Net Cost: 100,000-80,000=$20,000 (capital invested)
Annual income: $5,000 annual coupon – $1000 stock rental fee (1.25%) = net cash flow $4,000
Annual yield: $4,000 / $20,000 = 20%

Capital Structure Arbitrage:

Takeover Arbitrage:


Portfolio Structure and Investment Limits:

Single position maximum size: no single position (either single security position or in the case of convertible arbitrages the net value of the total position) will account for more than 5% of the equity of the portfolio at the time of its acquisition.

For arbitrages other than convertible arbitrages, the limit will be understood as being 5% of portfolio equity for the long position and 5% of portfolio equity for the short position, and the total portfolio allocation will be understood to be the gross sum of the two positions.

Composition guideline: We seek to diversify the portfolio among the various investment strategies with the goal of creating a balanced portfolio composition according to the guidelines below.

Investment limits per asset class, based on market value at time of assessment (percent of portfolio total market value). Minimum Foreseen allocation range Maximum allocation at time of purchase* Maximum market value within portfolio**
Corporate Debt 0% 30-50% 60% 75%
Dividend Paying Equity 0% 30-50% 50% 60%
Convertible Arbitrage (net value) 0% 10-20% 25% 30%
Capital Structure Arbitrage (net value) & Takeover Arbitrage (net value) 0% 0-10% 15% 20%

* Applies solely to the investment class for which an investment is being purchased.
** Preserves space for potential future growth of investments value.

Options:

Distributions
Income and realized gains will be distributed partially or totally as per the Investor’s instructions.
Undistributed income may be reinvested.


Risks

Risks are associated with an investment in the portfolio: fluctuation in value of the portfolio, no assurance of achieving the investment objectives, loss of investment, credit risk, taxation, conflicts of interest, change in laws, risks related to convertible debentures, risks related to merger arbitrage, risks related to global financial developments, use of short selling, composition of the portfolio, liquidity of the portfolio, uses of derivatives and hedging, interest rates risk, currency fluctuations, valuation, reliance on the manager.

Please refer to the Investment Management Agreement.

Fees:


Disclaimer

The past success of the above mentioned strategies is not a guarantee of future performance.

This document is offered for informational purposes only and does not constitute an offer to buy or sell any securities. There can be no assurance that a consistent return will be achieved, and an investor may in fact incur losses.

Takota Asset Management Inc.
March 26, 2015