Decade of Daddy Mirror Fund™ Monthly Report

Decade of Daddy Mirror Fund™ Monthly Report

It has been a busy time, so this winds up to be a monthly report, rather than a bi-weekly one (see prior post “O’Leary Global Equity Income Fund correlates perfectly with the DJ 30“).

We’ve taken a real beating on some of our names. BCE, BNS and Canadian Oilsands Trust come to mind. Even Warren Buffet is costing us dough. The good news is, I suppose, that we are treading water in our Mirror Fund, partly due to to the rise in the US$ (just over half of the positions are quoted in USD), and partly due to some early profit taking on BMO (sold at $47.17), CIBC (sold at $61.05), Merrill Lynch (sold at US$26.67) and Teranet (sold at $10.24).

Most of our current holdings are down in their home currency, but the dividends and distributions continue to come in across the board.

Our Decade of Daddy Mirror Fund™ (see launch in post “Decade of Daddy Mirror Fund” July 2-08) has now slipped below the $40 million Mendoza line. Now that the USA, Europe and Canada are in recession, making money over the past seven months was probably too much to hope for.

In the Mirror Fund, we’ve made money in (original currency):

Goldman Sachs 2037 Subdebt (+26%) and Bristol Myers (+8%).

Since the fund began we’ve locked in our profits on BMO ($775k, plus $87.5k divi), CIBC ($242k), Merrill Lynch ($799k) and Teranet ($307k plus distributions) as you’ve read in prior reports.

In the red column (original currency):

BCE (-35%), BNS (-35%), Berkshire Hathaway (-30%), CDN Oil Sands Trust (-64%), Duke Energy (-16%), Eli Lilly (-18%), JPM (-5%), Merck (-25%); MKS (-30%), Royal Bank (-14%), Spectra Energy (-29%) and Thomson Reuters (-3%).

Since we launched the mirror fund on Canada Day, the Dow Jones Index is down 2,803 points from the 11,382 level — or 24.6%. Our Decade of Daddy Mirror Fund is down 1.1% during the same timeframe with a value of $39.56 million (including dividends and currency moves). With more than half of the portfolio trading in US$, the 1.22 currency has certainly masked most of our paper losses on the U.S. stocks.

Terence Kevin O’Leary and his asset-gathering team at the real Decade of Daddy Fund™ continue to deal with the difficult global equity markets via their O’Leary Global Equity Income Fund (OGE-UN:TSX). The net asset value (”NAV”) has dropped again vs. our last report, and now sits at $8.29, as compared to the June $12 IPO price. We have to remember that it pays $0.05 in distributions each month, but the dividends the fund receives should mitigate much of that cash drain..

At $8.29, that’s a 30.9% decline from the launch date. As has been mentioned in the past, the decline has historically tracked the Dow Jones over the same time period, although OGE is now below the Dow’s -24.6% performance.

Despite that difference, there is a 93.0% correlation between the NAV and the Dow between August 29, 2008 and yesterday’s close.

The remarkable correlation of KO’s (as his friends call him) OGE fund to the Dow Jones 30 isn’t quite as remarkable as it was last month. Dropping from 97.2% to 93%; but the NAV is still tracking one of the world’s great benchmarks with surprising resilience. And given where the quote is, the Units have fallen in line to a certain extent.

Retail investors have finally noticed the drop in the NAV, as the units themselves have dropped with some haste. Sinking from $11.24 (our November report) to $8.18. For months, the units appeared to trade without any hint of where the NAV was going, defying logic.

Since the last check, the Units have gone from trading at a 23.1% premium to the OGE Fund’s actual NAV, to a 1% discount. Compared to the shares of Onex Corp. (OCX:TSX), which are trading at a 32% discount to the estimated NAV (according to a recent research report by Thomas Weisel Partners), OGE Unit holders can feel quite proud that things are holding in as well as they are.

But it appears that the market has figured out that pooled equity vehicles should trade with some sense of where the Fund’s NAV is at. Just as EVT and UNC do.

For our Mirror Fund, however, there are no compelling buys out there to justify any moves with our ~$3 million of cash on hand, other than 50,000 BMO at $30.05. Next year will be bleak for the stock markets, I fear, but BMO’s 9% dividend yield looks great.

Flat is the new up.

MRM
(disclosure – this post, like all blogs, is an Opinion Piece; we own BCE, BMO, BNS, COS, MKX and GS sub debt in our house)