Adams Diversified Equity Fund, Inc. (ADX) is one of two closed end funds offered by Baltimore-based Adams Funds. ADX offers a simple way to invest in some large U.S. growth companies with a target annual distribution of 6%. The fund has a solid long-term track record and in 2019, its 31.6% return on net assets slightly beat the S&P 500. With a price discount to NAV, the 2019 return was 36.6% on a market price basis. ADX pays token distributions in Q1, Q2 and Q3, with the lion’s share of the distribution occurring in December.
A closed end fund that picked a great time to be born
The fund traces its roots to Alvin Adams, who in 1840 began delivering packages as the U.S. developed rail, stagecoach and canal travel. Adams Express Company was founded in 1854 and in the last half of the 19th century competed with many other delivery services, including American Express (NYSE:AXP) and Wells Fargo (NYSE:WFC).
From the Mid-Continent Railway Museum
After nationalizing the railroads during World War I, the federal government gave shares of the American Railway Express Company to the big three express companies: Adams, American and Wells. Just before the big crash in October 1929, a government-sanctioned monopoly, the Railway Express Agency, was formed by 86 U.S. railroads, buying the AREC shares from Adams, American and Wells.
The Adams Express Company used this cash windfall to become a closed end fund in October 1929, perfectly timed to take advantage of the ensuing stock market crash the beginning of the Great Depression. The company had $72 million in assets at the end of 1929. At the same time, an affiliate petroleum company was formed.
Adams Diversified Equity Fund
Morningstar includes ADX in the Large Growth fund category, along with Gabelli Multi-Media Trust (GGT), Liberty All-Star Equity Fund (USA) and Nuveen Core Equity Alpha Fund (JCE). ADX is 98.3% invested in 89 U.S. stocks. The top 10 holdings represent 27.71% of the fund’s value, with 17.87% in the top 5: Microsoft (MSFT), Amazon (AMZN), Apple (NASDAQ:AAPL), Visa (V) and Bank of America (BAC).
Net asset value as of February 19, 2020 was $18.83. The closing price that day was $16.60, for a discount of 11.84%. There is no leverage and the total expense ratio is 0.56%. The 2019 Annual Report is expected to be posted on the Adams website on February 24, 2020.
Here is Morningstar’s review of the 15-year ADX performance, showing a 15-year annualized total return of 9.52%:
ADX says their investment approach is to assess company fundamentals in a portfolio strategy to generate long-term capital appreciation with careful attention to risk management.
Mark E. Stoeckle has been CEO and Senior Portfolio Manager for seven of his 39 years in financial services and asset management.
CFO and Treasurer Bryan S. Hook has been with Adams Funds since 2008. He has a total of 28 years in accounting and asset management.
Stoeckle and Hook participated in a 28-minute conference call on January 28, 2020, during which it was announced that the heretofore semi-annual calls would be done on an annual basis. The key data reported in the call was this:
“The total return on the Fund’s net asset value for 2019 was 31.6%, with dividends and capital gains reinvested. The comparable figures for the S&P 500 Index and the Lipper Large-Cap Core Funds Average were 31.5% and 29.6%, respectively. The total return on the Fund’s market price for the period was 36.6%.”
The recent pattern of distributions is a 5-cent quarterly distribution for the first three quarters, then a large distribution for the fourth quarter. The fund’s goal is to provide an annual distribution of at least 6%. Below is the ADX 5-year distribution history from the ADX website. The annual distribution rate shown is “the total dividends and capital gain distributions per share divided by the average month-end market price of the Fund’s Common Stock for the twelve months ended October 31.”
Investors looking for gradually growing quarterly or monthly payments should look elsewhere. But, if one is content with variable distributions targeted at a 6% annual minimum (most of which is received in December), ADX provides an opportunity to participate in U.S. blue-chip large-ap growth stocks with an above-average distribution plan.
Consistent with the long history of the Adams Funds, ADX has a large number of shareholders who have held the stock for several generations. This is a classic “put it in a drawer and forget it” type investment in U.S. blue-chip large-cap growth stocks.
I held shares of ADX for 16 months, from August 2018 through December 2019. The total return for that period was 12.25%, or 9.19% annually.
In the fall of 2019, I decided to close my CEF positions and focus 100% on common stocks to simplify the portfolio as part of a larger process of preparing my children for the next generation of management.
I contribute to Kirk Spano’s Margin of Safety Investing where we offer a more in-depth analysis of individual companies. Members have access to a SWOT Report (Strengths, Weaknesses, Opportunities, Threats) on the company.
Members are given support levels to buy and a “bottom fishing” price for backing up the truck. Invest with us in a changing world that demands a margin of safety.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This article is for informational purposes only (not a solicitation to buy or sell stocks). I am not a registered investment adviser. Investors should do their own research or consult a financial adviser to determine what investments are appropriate for their individual situation. This article expresses my opinions and I cannot guarantee that the information/results will be accurate. Investing in stocks involves risk and could result in losses.