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SVVC has just completed a tender offer and other changes pushed by an activist investor group. SVVC’s portfolio is now concentrated in a small number of high-risk investments. SVVC’s past successes are notable, but its venture funding approach is too risky for most. Firsthand Technology Value Fund (NASDAQ: SVVC ) can lay claim to some pretty good calls, including investing in such winners as Facebook (NASDAQ: FB ) and Twitter (NYSE: TWTR ). But with those wins behind it, the portfolio’s top holdings are no longer household names. If you like the idea of investing in emerging technology companies, perhaps you’ll like SVVC, but otherwise this is a risky investment option even with its massive discount and large trailing yield. What a difference a year makes In February 2014, SVVC’s top two holdings made up roughly 35% of the closed-end fund’s assets. Those two stocks were Facebook and Twitter. Interestingly Firsthand had started investing in Facebook in late 2011, roughly nine months before it went public. The closed-end fund, or CEF, started investing in Twitter in mid 2012, roughly a year before it went public. Those were big wins for the fund and, clearly, represented a huge chunk of assets. That’s part of the reason why Bulldog Investors, an activist hedge fund, got involved with SVVC. Bulldog essentially came in with a list of demands to reduce the fund’s wide discount. When it didn’t receive the reply it wanted, Bulldog went public with its fight. That fight came to an end in May of last year. Firsthand agreed to buy back shares, conduct a tender offer at 95% of net asset value, or NAV, and sell its stakes in Twitter and Facebook with the sale proceeds distributed to shareholders. That’s pretty much all a done deal at this point, and leaves investors with one big question: “What exactly is left behind?” For starters, the top five holdings , which account for roughly 45% of the fund, is a list of companies you’ve probably never heard of. None of them are publicly traded and Firsthand has a controlling stake in the top holding, IntraOp Medical (over 12% of SVVC’s assets). What does this mean for you? So Firsthand is a very different fund today than it was a year ago. But what does that mean for investors? First off, the 18% trailing yield, according to the Closed-End Fund Association , was related to the distribution of gains from selling Twitter and Facebook shares. That’s done. Don’t expect a repeat. Second, the 37% discount is based on estimated values for a large number of non-traded holdings. You have to ask if that discount is real, particularly since Firsthand has to value a company in which it has a controlling stake. Third, the 95% of NAV tender offer has been closed. Not surprisingly it was oversubscribed. So with that offer off the table, there’s no reason to expect Firsthand to trade higher based on a chance to get out quickly, and at a profit, via a tender offer. And there’s really no reason to think that Firsthand would switch to open-end status, which is something that often happens with funds that trade at deep discounts. For starters, Bulldog has agreed to step back from its aggressive stance – it was the logical option to push for SVVC to become an open-end fund. And then there’s the not-so-minor fact that Firsthand actually started life as an open-end fund, oddly switching to the closed-end structure in 2011. The timing of that switch actually wasn’t so odd, since it took place after the technology bust brought down both the values and unbridled enthusiasm for tech funds like this one. The “odd” thing is that an open-end fund would become closed-end, since things normally happen the other way around. Another impediment to becoming open-ended, and one of the biggest risks of the CEF, is that the fund owns a collection of securities that aren’t publicly traded. Such investments don’t play nicely with open-end funds and are, indeed, more appropriate for closed-end funds. So SVVC’s current structure as a closed-end fund is probably the right structure. That said, it doesn’t mean you should want to own a fund that invests in such holdings. Don’t buy this for the discount At the end of the day, Firsthand Technology Value Fund is an interesting story. But it isn’t a good investment option for most people. Essentially, it’s a way to invest in startups. And that business is like a power hitter that strikes out a lot, but also hits a few home runs along the way. That’s not the type of trade off most conservative investors are willing to make. So ignore the discount and the trailing yield here, and pay far more attention to what this CEF does. If you can’t stomach venture capital risk, stay away. Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article. Scalper1 News
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