Adams Express Company

Adams Express Company (Ticker: ADX) is one of the oldest and most storied Closed-End Funds (CEFs) in the United States, trading on the New York Stock Exchange. Its history stretches back to 1854, long before the age of the automobile, when it operated as a leading express delivery service, a contemporary of companies like American Express. The company's trajectory took a dramatic turn during World War I when the U.S. government nationalized the nation's express businesses to support the war effort. Faced with the loss of its core operations, Adams Express ingeniously reinvented itself. It used the proceeds from the government buyout to transform into a diversified investment company. This pivot from horse-drawn carriages to stock portfolios marks a fascinating piece of American financial history. Today, it operates as an internally managed equity fund, offering investors a slice of a professionally managed portfolio, often with a unique twist that attracts value investing aficionados.

For those who follow the principles of value investing, Adams Express offers a compelling case study, primarily revolving around two key features: its discount to NAV and its shareholder-friendly distribution policy.

The magic word for value investors looking at CEFs like Adams Express is discount. A closed-end fund has a fixed number of shares that trade on an exchange, just like a stock. Its price is determined by market supply and demand. However, the fund also has an intrinsic value, its Net Asset Value (NAV). The NAV is the per-share market value of all the securities in the fund's portfolio minus any liabilities. Often, a CEF's market price can be lower than its NAV. When you buy Adams Express at, say, a 15% discount, you are effectively paying 85 cents for a dollar's worth of underlying assets. This is the classic value investing principle of buying something for less than its intrinsic worth, creating a potential margin of safety. Historically, Adams Express has frequently traded at such a discount to Net Asset Value (NAV), offering a compelling entry point for patient investors.

Adams Express has a shareholder-friendly distribution policy that further sweetens the deal. The company is committed to an annual distribution rate of at least 6%. This payout is calculated based on the fund's average month-end market price for the preceding 12 months. This distribution is typically funded by a combination of:

• Income from dividends received from the stocks it owns.
• Realized capital gains from selling profitable investments.

This policy provides investors with a relatively predictable income stream and demonstrates a clear commitment to returning value to shareholders. Over the long term, this reliable payout can also help moderate the fund's discount to NAV.

Unlike its 19th-century predecessor that shipped physical goods, today's Adams Express “holds” a portfolio of publicly traded stocks. It is a diversified, internally managed equity fund focused primarily on the U.S. market, with a strong emphasis on large-capitalization companies. Think of it as owning a slice of corporate America—its portfolio typically includes well-known names in sectors like technology, healthcare, financials, and consumer goods. A key advantage is its internal management structure. Unlike many funds that pay a hefty fee to an external advisory firm, ADX's management team are employees of the company. This structure generally leads to a lower expense ratio, meaning more of your money stays invested and working for you—a subtle but powerful tailwind for long-term returns.

No investment is without risk, and Adams Express is no exception. A prudent investor should consider the following points.

While the discount to NAV is an attraction, it can also be a frustration. There is no guarantee that the gap between the market price and the NAV will ever close. A 15% discount can easily become a 20% discount if market sentiment sours on the fund or on CEFs in general. Investors should not buy a CEF solely on the hope that the discount will narrow. Instead, it's wiser to view the discount as a bonus on top of a solid underlying portfolio and a reliable distribution.

This might seem obvious, but it's crucial to remember: Adams Express is a basket of stocks. If the broader stock market (e.g., the S&P 500) takes a nosedive, the value of the fund's holdings—its NAV—will fall right along with it. The share price will almost certainly follow suit. It is not immune to market risk. An investment in ADX is a bet on the long-term performance of the U.S. stock market, viewed through the lens of its specific management team and strategy.