Minyanville reader Peter writes:
What is happening with GSV Capital (NASDAQ:GSVC)? Why is its price so disconnected from the NAV?
GSV Capital is a closed-end investment fund focused on acquiring stakes in high-growth public and private technology companies, which isn't exactly an ideal mix for the current market environment.
I last took a position on March 5 but was stopped out for a loss as the market went risk-off, driving down hot momentum stocks like FireEye (NASDAQ:FEYE) and Splunk (NASDAQ:SPLK).
The ugly market action put a hit on GSV Capital's portfolio, and its heavy concentration in Twitter (NYSE:TWTR) hasn't helped.
Twitter is down 37% since it reported earnings in February, and down 8% since its first trading day on November 7, 2013.
Last year, GSV Capital was largely seen as a way to get into Twitter pre-IPO, and that was a great trade -- for a while.
As you can see in this chart, the smart money was selling GSVC as Twitter went public. (Twitter is represented by the purple line.)
Click to enlarge
This year, investors view GSVC as an extreme high-beta tech fund -- and that's what's creating the disconnect from NAV.
At year-end, GSVC's NAV per share was $14.91, and based on recent market prices, it's still above $13.
GSVC is technically trading at a 30%+ discount to NAV, but because it owns illiquid stakes in private companies, the market sort of slaps on an extra discount to account for associated uncertainty.
Some of GSVC's private holdings -- like Spotify, Dropbox, Palantir, and Lyft -- could very well end up being blockbuster IPOs or acquisition targets.
But for now, investors are running straight away from high-beta tech stocks, which results in diminishing expectations for the IPO market.
Even Facebook (NASDAQ:FB), which reported blockbuster earnings last week, is having trouble holding a rally.
Investors may also be fearful of holding GSVC ahead of Twitter's first-quarter earnings report due Tuesday, given the beating the stock took last time around.
Ultimately, buying GSVC is a bet that high-beta momentum stocks make a comeback, and it could snap back extremely hard in that type of scenario.
Until then, it will, at best, tread water as risk remains out of favor.
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