SDT.UN Trading at a 14% Discount to Net Asset Value

Sentry Select just published the Net Asset Value (NAV) of SDT.UN as of November 22, 2007 of $4.71. It closed at $4.04 resulting in a $0.67 discount to NAV. This translates to a 14.2% discount to NAV.

It appears that the diversified exchange traded funds move towards a 15% discount NAV when the market is weak and uncertain.

Investors can't go wrong by purchasing these funds at such a deep discounts but you must be willing to hang on until the price recovers and I recommend trading this particular fund when it gets close to NAV or they announce share offerings. This particular fund is not a buy and hold type investment in my opinion.

Collapse of SDT.UN Market Price

Sentry Select Diversified income exchange traded fund has experienced a severe market price collapse. It appears to me that a lot of the new unit holders from the share exchange offering are jumpimg out of their positions.

The question on everyone's mind is why hasn't Sentry conducted a large buy back to support the unit price.

I can't answer this question but I can tell you the following;

Approximate Number of Units Outstanding as of Oct 1, 2007; 200,000,000

Approximate Nmber of Units Outstanding as of Oct 31, 2007; 265,000,000

Approximate number of units cancelled due to share purchase on the open market as of Oct 31, 2007; 6,500,000

Approximate number of units available for cancellation in the 4th quarter (5% of outstanding units at begining of qtr); 10,000,000

Approximate number of shares available for cancellation in Q4; 3,500,000

Approximate Number of Units held by Manager Sandy McIntyre; 365,000

Net Asset Value as of Nov 15, 2007 (even less now); $4.82

Market Value as of Nov 21, 2007 (even less today); $4.00

Discount to Net Asset Value; 17%

Annualized Distribution per Unit; $0.54

Yield on Market Value; 13.5%

Yield on Net Asset Value; 11.2%

It appears to me that SDT.UN will not repurchase units to support the unit price until later on this quarter. Until then if you want to sell you will need to accept a huge discount to Net Asset Value.

I am holding on to my remaining position until the units trade within 5% of Net Asset Value. At that point I will probably exit my position.

Please perform your own due diligence.

SDT.UN and EIT.UN Trying to Support Unit Price With Buy Backs on the Open Market

The managers of SDT.UN and EIT.UN were actively in the market last week trying to support their unit prices.

Its hard to believe how far the unit prices have fallen and the discount to Net Asset Values are widening. Its no question that they are experiencing panic selling.

I have not sold the positions I still have at this point because sooner or later the unit prices will get closer to their net asset value. Furthermore, these stock buy backs will automatically increase the Net Asset Values of the remaining units.

Its like shooting fish in a barrell for the managers right now. They can raise their Net Asset values just by purchasing units. They will look like geniuses.

As the unit prices approach 95% of Net asset value I will begin to unload my remaining units.

SDT.UN Lost 3.3% of Net Asset Value for Existing Unit Holders

SDT.UN reported their Net Asset Value (NAV) as of November 1, 2007 as $5.06 per unit. The NAV on October 25, 2007 was $5.23 per Unit. This represents a dilution of $0.17 or 3.3% to the existing unit holders as result of the share exchange offer they recently completed.

This is unfair and shows that management cares more about itself then unit holders.

As I said in my last post, all the benefits of professional management are accruing to the manager and not the investor.

SDT.UN is now trading at a 10% discount to Net Asset Value which is the normal range since the October 31, 2006 Income Trust melt down caused by the new Government of Canada 31.5% tax on Trusts. This explains their recent weakness.

I plan on slowly unloading my units in SDT.UN and develop my own diversified holdings. I may not do as well as Sandy McIntyre but I will probably beat him on a total return basis due to Sentry Select's disregard for its unit holders.

SDT.UN is no longer one of my top picks. Keep watching the BLOG as I will update my Top Picks selection shortly.

I am Deeply Disappointed in the Managers of EIT.UN and SDT.UN

This year my largest holdings were in units of SDT.UN and EIT.UN. These two exchanged traded funds invest primarily in Canadian Income Trusts and provide excellent monthly distributions which is a core value of investing for income.

Both firms recently closed a share exchange where investors in Trusts and Canadian Banks could exchange their holdings into units of the funds. The problem is that they exchanged the holdings with Units that are trading well below Net Asset Value.

This is a bad deal for existing unit holders. EIT's Net Asset Value decrease at least $0.12 per unit. The only ones that win are the managers because their fund gets larger and they consequently get more fees. Its obvious to me that the fund mangers put their interest ahead of unit holders.

If the managers were acting in the interest of existing unit holders they could have undertaken the following;

1) a rights offering to existing unit holders at a discount to market value. Unit holders would then be able to excercise their rights (and suffer no dilution) or sold their rights in the open market.

or

2) they could have waited until the market price of the units was within 5% of the Net asset Value before undertaking a share exchange

or

3) They could have done nothing and waited for the market price to catch up to the Net Asset Value.

SDT.UN's new Net Asset Value after accounting for the share exchangehas not yet been published but I suspect that the Net asset Value decrease will be in the range of 2%-3%.
SDT.Un's sister ETF fund SEF.UN undertook a similar share exchange offering last spring and unit holders lost almost 10% of their Net asset Value.

What to do now?

I am slowly starting to unload my units in SDT.UN and EIT.UN. These funds are no longer a buy and hold investment. It is my opinion that whatever value the professional management brings to these funds its all eaten up in fees and dilutions.

I am developing my own diversified portfolio of income securities.

I am still hanging with my portfolio

I sold 10,000 SDT.UN and 2,000 HTE.UN during this last correction in order to raise cash.

I am hanging on right now because the valuations in the oil and gas sector is compelling.

I am considering loading up on natural gas Trusts because they are so beat up.

I have not Changed my Holdings

I have not published in awhile but rest assurred that I have not changed my holdings.

My largest positions are the same picks I have been advocating over the last 6 months.

EIT.UN-TSX and SDT.UN-TSX Clobbered

My two largest holdong Enervest and Sentry Select Diversified Exchange Traded income funds got clobbered today.

This is primarily due to the government announced they will tax Hotel and Retirement REITS operating income.

I am anxious to see the Net Asset Values of these two trust ETF's tomorrow morning.

I suspect the NAVs may be up.

Diversified Income Trust Exchange Traded Fund SDT.UN-T by Sentry Select

The table below lists the Net Asset Value (NAV) of Sentry Select's Diversified Income Trust Exchange Traded Fund (ETF). It trades on the TSX only under the symbol SDT.UN

February 15, 2007 $5.47
February 8, 2007 $5.42
February 1, 2007 $5.37
January 25, 2007 $5.35
January 18, 2007 $5.31
January 11, 2007 $5.17
January 4, 2007 $5.18

As you can see from the start of the year the NAV has gone up every week for a total of 4.6% return on NAV. Plus we have been paid 2 monthly distributions of $0.045 per month for a total return of 6.4% for 2007. This is a testament to the investment acumen of the fund manager. I suspect that some of the increase in NAV is due to the Manager's buy back of units. At today's market price all unit buy backs are very accretive to the unit NAV.

The other important point is that it shows that the trust sector is recovering in spite of the negative press in Canada.

The market value of the the units has not increased at the same pace as the NAV but in time the increasing NAV will pull the market price up.

The fund is now my largest holding.

Please perform your own due diligence before taking any positions discussed in our BLOGs.