Decade of Daddy Mirror Fundâ„¢ Monthly Report

Decade of Daddy Mirror Fund™ Monthly Report

Our Decade of Daddy Mirror Fund™ continues to sleep soundly, with none of our picks causing us any unique strife (although the U.S. currency move has had a big impact as more than half of our positions are traded in US$).

The US$ is down from the March 1.29 exchange rate to 1.123, which cramps performance over the period. Dividends have boosted cash to $2.379 million.

All told, the Mirror Fund is up 1.4% to $40.6 million. Staying above par NAV is important as we approach 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 (+52%), Goldman Sachs 2037 Subdebt (+35%), JP Morgan (+0.6%), MKS (+9%) and Royal Bank (+14%) {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 (again in home currency):

BCE (-31%), BNS (-9.6%), Berkshire Hathaway (-34%), Bristol Myers (-6.6%), CDN Oil Sands Trust (-44.5%), Duke Energy (-15.6%), Eli Lilly (-26.8%), Merck (-31%), Spectra Energy (-19%) and Thomson Reuters (-4.4%).

Financials, energy and drugs. Sounds like a capital growth and dividend fund to me. Although there hasn’t been a single stock trade so far in 2009, the theme is consistent. But we will have to deploy the $2.4MM of cash, and with a decent C$ currency exchange rate, let’s put another $500k into each of Merck and Eli Lilly; which gets us a little closer to being fully invested.

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 continues to trade with wild abandon (see prior post “Portfolio churn continues at O’Leary’s Global Equity Income Fund” May 19-09). It is still unclear if this is helping his performance, although at last the unit trading price is now sensibly below the NAV.

Since we launched the mirror fund on Canada Day 2008, the Dow Jones Index is down 2,583 points from the level of 11,382 — or 22.7%. The S&P 500 is down 26.4%, as is the TSX. Our Decade of Daddy Mirror Fund is up 1.4% during the same timeframe with a value of $40.6 million (including dividends and currency moves). With more than half of the portfolio trading in US$, the currency matters.

The unit price of the O’Leary Global Equity Income Fund is down 37 cents since our last report (see prior post “O’Leary performance continues to lag Mirror Fund” April 13-09), and now sits at $7.71, as compared to the June $12 IPO price (a 36% drop). One can’t forget that it has paid out 40 cents in cumulative distributions since launch; bake that into your return and you’re “only” down 32%, unless you reinvested the distribution in more OGE units, since they’ve gone down just about each and every month since the IPO.

With a $8.42 NAV, the decline since the launch date has improved from 37% to 30%. As has been mentioned in the past, the decline has nicely tracked the S&P 500 (-25%) and the Dow Jones 30 over the same time period (-22.7%). The correlation between the NAV and the Dow between August 29, 2008 and Friday’s close remains high — at 88%. Despite the sale of 17 of the top 25 stocks during the last couple of quarters, the fund’s NAV continues to track one of the world’s best known benchmarks with almost a “mirror-like” perfection.

None of this matter a snick to the Canadian brokerage industry, as Mr. O’Leary’s rock star investing reputation is sufficient to generate $126 million of orders for the recent IPO of the O’Leary Canadian Opportunities Fund (OCY.UN:TSX). According to the prospectus: “The Fund has been created to invest in an actively managed portfolio comprised primarily of publicly-traded securities of mid and large-cap issuers domiciled in Canada providing investors with both income and potential for capital appreciation. The Fund will invest primarily in corporate bonds, convertible debt securities, preferred shares, as well as income trust units and dividend-paying equity securities of such issuers.”

That sounds alot like the mandate of the O’Leary Global Equity Income Fund (OGE), just Canadian centric. As I recall, the OGE prospectus said there were “only 220” meaningful dividend paying stocks in Canada, and that’s why the world needed OGE…to get access to the other 6,100 names. My how times have changed.

The unit price of Mr. O’Leary’s first Canadian fund (OGE.UN:TSX) is down 36% in the year following its IPO, worse than any other relevant benchmark. Having not been able to get a $40 million fund to work, at least not yet, Canadian investors have sent another $126 million his way, now that the market crash appears to be behind us.

If you can bring yourself to ignore OGE’s actual financial performance and trading price, what he’s accomplished over the past 12 months takes your breath away. The power of television.

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)