The history of the American West includes images of stagecoaches moving across the open prairie, transporting passengers and supplies across the nation in support of the pioneer effort. Interestingly, several financial giants in the modern era, including Wells Fargo and American Express, tie their roots to their stagecoach origins, with Wells Fargo in particular adopting the iconic transportation method as part of its logo.
Adams Express (NYSE:ADX) doesn't have the same name recognition as Wells and AmEx, but it too has a long history that stems back to the 19th century express-delivery business. For more than 85 years, Adams Express has been a closed-end fund, an exchange-traded investment vehicle that gave stock market investors access to a diversified portfolio of holdings decades before exchange-traded funds came into the limelight. Today, Adams Express announced that it would give up its historic name, taking steps to integrate it and its sister fund, Petroleum & Resources (NYSE:PEO), into the newly named Adams Funds family that makes clearer their shared history and features. For investors, though, the real key is the performance behind the funds' new brand identity.
What Adams Express does
Many people aren't familiar with closed-end funds, but they are in many ways similar to exchange-traded funds. Like ETFs, closed-end funds trade on the stock exchange during market hours. Unlike ETFs, though, closed-end funds have a fixed number of shares outstanding, and so share prices can fluctuate above or below the net asset value of the shares depending on investor supply and demand. In the case of Adams Express and Petroleum & Resources, shares have traded at a substantial discount to net asset value for most of their history, allowing investors to get investment exposure at a lower price than they'd have to pay in order to buy their proportional share of the funds' holdings.
Adams Express is a well-diversified fund that holds investments in sectors throughout the economy, and so its new name will be Adams Diversified Equity Fund. Petroleum & Resources, on the other hand, has had a focus on stocks of oil companies and other businesses focusing on various natural resources, and it will get the new name of Adams Natural Resources Fund.
In an exclusive interview, I asked Adams Express CEO Mark Stoeckle what motivated the changes. Stoeckle explained that it was important to keep the history of the funds while also taking away confusion about what exactly Adams Express and Petroleum & Resources do. "We wanted to freshen up the brand, taking the best of our history and updating it," Stoeckle said. "We want to tell our investors and those who don't yet know about us that we are funds and that we share a common management team."
Standing out from the crowd
Unfortunately, many closed-end funds have a negative reputation for carrying high fees, charging even more for their management than similarly situated regular mutual funds, let alone low-cost index-tracking ETFs. But both Adams funds have traditionally steered clear of the race to higher fee structures. "Our expense ratios are much lower than the average fund out there," Stoeckle explained, "and we still offer active management to investors." The expense ratios for the funds are 0.58% for Adams Express and 0.63% for Petroleum & Resources.
The other way in which the Adams funds have sought to appeal to their investor base is through offering a steady stream of income to shareholders. For the past several years, both funds now have adopted provisions that demonstrate their commitment to those seeking income from their investment holdings. Stoeckle sees the provisions as an attractive feature of the funds, noting that "In an environment where income is very hard to come by, our funds are committed to paying a minimum 6% distribution rate annually."
Still, even with the name change, what really matters to investors at the end of the day is performance. With average annual returns of 7.6% on a market-price-return basis over the past decade, Adams Express ranks in the top 10% of large-blend funds. Petroleum & Resources has a much smaller number of peers, but its 15-year market return of 7.7% annually compares favorably with broader-based funds tracking energy and natural resources.
In the end, the name change should give investors a greater ability to judge the two funds on their merits. "We want Adams Funds to be known not just for the low expenses and high dividend distribution rates they offer but also for the investing expertise that produces their strong results," Stoeckle said. As long as the Adams Funds deliver the returns that investors want, few will mourn the decision to take a small step away from their roots as a pioneering force in opening up the American West more than a century and a half ago.