Decade of Daddy Mirror Fund™ Bi-weekly Report

Things are tough for our Mirror Fund. The US$ stock portfolio concentration doesn’t hurt, but it isn’t enough to keep the fund’s value above par (see launch in post “Decade of Daddy Mirror Fund” July 2-08) is still below the $40 million Mendoza line. But the dividends and interest payments keep flowing in.

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

Bank of Montreal (+1%), Bristol Myers (+6%), and Goldman Sachs 2037 Subdebt (+32%).

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 (-28%), BNS (-38%), Berkshire Hathaway (-38%), CDN Oil Sands Trust (-65%), Duke Energy (-14%), Eli Lilly (-20%), JPM (-24%), Merck (-26%); MKS (-18%), Royal Bank (-30%), Spectra Energy (-32%) and Thomson Reuters (-23%).

I wonder if we are overweight in the financials (do you think?). Here I thought that JP Morgan was rock solid, but it has nevertheless slid from US$31.86 to US$24.28 since we bought it last summer. The fact that Terence Kevin O’Leary recommended that people buy JPM at US$49.63 in October via The Globe and Mail (see prior post “O’Leary shows the Decade of Daddy Mirror Fund some love” October 2-08) doesn’t take the sting out at all; people who took his advice suffered a 51% drop in barely three months, versus a 22% drop in the Dow!

Since we launched the mirror fund on Canada Day, the Dow Jones Index is down 3,304 points from the level of 11,382 — or 29.0%. Our Decade of Daddy Mirror Fund is down 3.6% during the same timeframe with a value of $38.611 million (including dividends and currency moves). With more than half of the portfolio trading in US$, the 1.23 currency has certainly masked most of our paper losses on the U.S. stocks.

The net asset value (”NAV”) of the O’Leary Global Equity Income Fund (OGE-UN:TSX) is only down another twenty-five cents since our last report (see prior post “Decade of Daddy Mirror Fund™ Monthly Report” January 6-09), and now sits at $8.39, as compared to the June $12 IPO price. One can’t forget that it pays $0.05 in distributions each month, but the dividends the fund was to receive from its investments was to mitigate much of that cash drain….

With an $8.39 NAV, that’s a 30% decline from the launch date. As has been mentioned in the past, the decline has nicely tracked the Dow Jones over the same time period (-29%). The correlation between the NAV and the Dow between August 29, 2008 and yesterday’s close remains high at 92.8%. 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 in November; down from 97.2%. But the NAV is still tracking one of the world’s great benchmarks with almost a “mirror-like” perfection.

Retail investors have pushed the price of the publicly traded units down a touch; from $9.45 to $9.09 since our last report. Could it be that investors are starting to keep an eye on the NAV?

The fact that the OGE is down 30% since its IPO is having no impact on Mr. O’Leary’s ability to launch new funds. Just two weeks ago, he and his asset-gathering team announced that CIBC World Markets and RBC Capital Markets would be raising capital for, you guessed it, the IPO of the O’Leary Global Income Opportunities Fund (his 3rd fund in the past 9 months):

The Fund has been created to invest globally primarily in publicly-traded investment grade corporate bonds, convertible debt securities, preferred shares and dividend-paying equity securities of issuers having market capitalizations of at least $1 billion.

What can I say? Three funds in a year. And the fact that the first two have caused paper losses for investors doesn’t scare the ECM desks or stockbrokers on Bay Street one iota. Let it be said: Mr. O’Leary is a very talented and convincing television personality.

In related news, I’m told that KO called the unionized people who make cars in Canada “losers” on the CBC National News last Thursday night.

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