HQL Announces Share Buyback Program Renewal and I don't get it

LLJB

news.morningstar.com/all/ViewNews.aspx?article=/BW/BWIPREM20150319006229_univ.xml

The fund announced today that its Board of Trustees has renewed the authorization to repurchase up to 12% of outstanding shares. In value terms this is in the neighborhood of $60MM. It was only last September that they issued new shares the value of which was a little more than $70MM.

There are a number of us here who have investments in this and other Tekla funds, and this doesn't make any sense to me. None of these activities, issue shares then buy them back, are cost free and I'm pretty sure we as shareholder's are the ones bearing those costs. I'm pretty sure part of the rationale for issuing new shares last year was the belief there were additional investment opportunities that they wanted to take advantage of. What happened to those? Part of the rationale now is "to enhance shareholder value and potentially reduce the discount between the market price of the Fund’s shares and the net asset value per share". Since early January, however, the fund has been trading at a premium to its NAV.

Is there something I'm missing that makes all of this make sense? Or are these guys playing games with our money that might have more to do with their bonuses or something else than with anything related to shareholder value?

scott

I noticed this as well and am rather curious as to the reasoning why. I would understand it in terms of THQ (which is also included in the buyback and is trading at almost a 10% discount), but not HQL/HQH. Perhaps I'll write them tomorrow and see if they respond.

mns

"The amount and timing of repurchases will be at the discretion of Tekla Capital Management LLC, the investment adviser to the Fund. There is no assurance that the Fund will purchase shares at any specific discount levels or in any specific amounts or on any specific date."

It seems that the board is preserving the option for management to repurchase shares rather than announcing that it will do so.

BenWP

Now I don't feel so bad about missing out on the issuance of new shares last year. I misinterpreted what Schwab asked me to do and I got no new shares.

LLJB

I can't really complain about how HQL has performed but this stuff just doesn't sit well with me. @scott, if you take the initiative to write and get a response you will have done very well because at this point I think I'd do a bad job of writing any constructive.

@BenWP, I did participate in the share issuance last year and even over subscribed. I haven't gone back to compare their specific performance since then to healthcare generally, but HQL is up in the neighborhood of 50%. They're fully invested now from what I can tell so maybe @mns is right, its just keeping the option open. But it's sending a bad message to me.