O'Leary performance continues to lag Mirror Fund

O’Leary Facts & Figures Week Part Two

Our Decade of Daddy Mirror Fund™ continues to run on autopilot (see prior report “Decade of Daddy Mirror Fund™ Report” March 4-09), but that’s the luxury of choosing decent stocks it would appear; or, perhaps, being too busy to chase returns. The better news is that our numbers are back in the black after a few months of negative performance.

Despite a drop in the US$ from a March 1.29 exchange rate, our U.S. holdings are doing just fine. And lots of dividends over the past few months (I was behind on tracking them) have increased the cash balance by almost $500k to $1.98 million.

All told, the Mirror Fund is up 3.5% to $41.4 million. Being above par NAV is wonderful as we veer towards our one year anniversary of the $40 million fund’s launch (see launch in post “Decade of Daddy Mirror Fund” July 2-08).

In the Mirror Fund, we’re making money in Bank of Montreal; (+20%), Goldman Sachs 2037 Subdebt (+21%) and JP Morgan (+3%) {gain/loss percentages in home currency}.

Since the fund began we’ve locked in our gains on BMO ($775k; but we are back in again), CIBC ($242k), Merrill Lynch ($799k) and Teranet ($307k plus distributions) as you’ve read in prior reports.

In the red column (home currency):

BCE (-26%), BNS (-28%), Berkshire Hathaway (-33%), Bristol Myers (-5%), CDN Oil Sands Trust (-46%), Duke Energy (-20%), Eli Lilly (-30%), Merck (-31%); MKS (-4%), Royal Bank (-1%), Spectra Energy (-31%) and Thomson Reuters (-8%).

Although we continue to be overweight the financials, the moves by the U.S. government to suspend the mark-to-market rules, not to mention QE, has helped for sure.

Although there hasn’t been a single stock purchase in 2009, at least there’s a consistent theme. Over at what we refer to as the Decade of Daddy Fund, the O’Leary Global Equity Income Fund (OGE.UN:TSX), Dragon Terence Kevin O’Leary has been trading frenetically. His an annual portfolio turnover rate is 254%, but it hasn’t appeared to help his performance. At least not so far.

For those that found humour in the fact that Mr. O’Leary had bought so many of the same stocks for his Global Equity Income Fund as we had for our Mirror Fund (see prior post “O’Leary ‘Global’ Equity fund loads up on old Canadian favourites” February 13-09), those days are over. Perhaps stung by the criticism that his six largest positions in the “Global Equity” fund were Canadian, Mr. O’Leary reduced or sold BCE, Telus, Transalta and CDN Oilsands Trust sometime between Q3 and Q4 (we have BCE and COS); Fording Coal and Teranet went the way of the M&A route (our Mirror Fund had Teranet).

Since we launched the mirror fund on Canada Day, the Dow Jones Index is down 3,299 points from the level of 11,382 — or 29%. Our Decade of Daddy Mirror Fund is up 3.5% during the same timeframe with a value of $41.4 million (including dividends and currency moves). With more than half of the portfolio trading in US$, the currency has certainly masked some of our paper losses on the U.S. stocks.

The unit price of the O’Leary Global Equity Income Fund is up 60 cents since our last report (see prior post “Decade of Daddy Mirror Fund™ Bi-weekly Report” March 4-09), and now sits at $8.08, as compared to the June $12 IPO price (a 33% drop). One can’t forget that it has paid out 35 cents in cumulative distributions since launch.

With a $7.56 NAV, the decline since the launch date comes in at 37%. Suggesting that the unit trading price is now appropriately tied to the underlying NAV. As has been mentioned in the past, the decline has nicely tracked the S&P 500 (-32%) and the Dow Jones 30 over the same time period (-29%). The correlation between the NAV and the Dow between August 29, 2008 and Friday’s close remains high — at 94.8%. Despite the huge change in 17 of the top 25 stocks, the fund’s NAV continues to track one of the world’s best known benchmarks with almost a “mirror-like” perfection.

The fact that all three of Mr. O’Leary’s funds are trading below their offering price has had no impact on his ability to raise money from the investing public. To whit, he has just announced the new “O’Leary Canadian Income Opportunities Fund“. More on that later.

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)