Decade of Daddy Mirror Fundâ„¢ Quarterly Report

Slow and steady is probably the best way to describe the performance of our Decade of Daddy Mirror Fund™. But, we continue to come out on top when compared to the key indicies and our true benchmark — the O’Leary Global Equity Income Fund (OGE.UN:TSX). For those who can recall that far back, we coined the phrase “Decade of Daddy Fund” back in the summer of 2008. Even our friend KO must approve, he’s used the phrase on television himself!

The drop in the US$ from 1.0334 to 1.0158 slightly depresses performance, once again.

Am I ever glad that we got back into the financials during the first week in January, having temporarily exited all of our fabulous bank stock positions based upon a misplaced concern last November about what the financial crisis in Dubai might have meant for the global financial system (“Eid’s pause won’t help Western Banks as Dubai reels” Nov 27-09).

Since we got back in at the start of the year, our bank stocks have done fine: BMO, BNS, JPM, RY and TD are all up between 3% and 16%.

Our Mirror Fund was up 6.8% to $42.7 million as of the one year mark, and is now up 16.7% to $46.7 million as of yesterday’s close. During the same timeframe post-launch (Canada Day 2008), the Dow is down 7.1% and the S&P 500 is off 9.9%.

In the Mirror Fund, we’re making money in BMO (+14%), BNS (+3%), Bristol Myers (+21%), Goldman Sachs 2037 Subdebt (+41%), JP Morgan (+7%), Merck (+6%), MKS (+67%), Royal Bank (+6%), Spectra Energy (+4%), TD Bank (+16%) and Thomson Reuters (1%) {gain/loss percentages in home currency}.

Since the fund began we’ve locked in our gains on BMO ($775k and $1.133MM but we are back in again), BNS ($136k but are back in again), CIBC ($242k), JP Morgan ($1MM but are back in again), Merrill Lynch ($799k), Royal Bank ($566k but are back in again) and Teranet ($307k plus distributions) as you’ve read in prior reports.

In the red column (again in home currency):

BCE (-18%), Berkshire Hathaway (-12%), CDN Oil Sands Trust (-42%), Duke Energy (-6%) and Eli Lilly (-17%).

Over at the O’Leary Global Equity Income Fund (OGE.UN:TSX), Mr. O’Leary is still trailing the indicies and our little test fund. Since the market began its recovery in early March 2009, the S&P 500 is up 71.2%, the Dow Jones is up 64.6%, yet the net asset value for OGE (aka the Decade of Daddy Fund™) is up but 35.4%.

The unit price of the O’Leary Global Equity Income Fund is down 22% since it was launched in July 2008, and now sits around $9.32 as compared to the June 2008 $12 IPO price. One can’t forget that it has paid out $1.31 in cumulative distributions since launch; bake that into your return and you’re “only” down 11% — which is still materially worse than both the Dow and the S&P (and that excludes the dividends you’d have received from the shares in the indicies).

With us up 16.7%, and KO’s global equity investment strategy off 11.4% (including the benefit of monthly cash distributions), that’s what they call 2,810 basis points of “value add” in the fund management industry.

Yea, you might say, but we didn’t charge y’all management fees! This is true, but since I’ve spent about 10 minutes each year picking these stocks, it is difficult to determine what might represent a fair fee for such services. Let’s imagine I’d charged 2% per annum, and we had another 2% in audit, legal and accounting fees each year too. Plus, take 6% off for our original IPO commission and 3% for the original IPO legal fees.

Those charges, if taken together, would lop 16% off our return since inception figure (rough est.). That represents about half of the delta between the Decade of Daddy Mirror Fund™ and the Decade of Daddy Fund™ itself.

OGE’s NAV correlation with the Dow between August 29, 2008 and yesterday’s unit close remains a robust 93.5%; the fund’s NAV continues to track one of the world’s best known benchmarks with almost a “mirror-like” perfection.

None of this matters a whit, of course, as Canada’s top Dragon has raised about $784 million from Canadian investors over the past 21 months. That’s the definition of success for many. One must applaud what Mr. O’Leary has accomplished in such a short space of time, all based upon non-stop television exposure. Other than Marret’s Barry Allen, it has been years since a fund manager raised so much, so fast.

Congrats to him and the team at Stanton Asset Management, which has transformed itself from a hedge fund fund of fund shop in 2008, to a Canadian equity, US equity, Global equity, Global Infrastructure stock, domestic Fixed Income, Global Fixed Income, private placement, balanced fund, Brazil/Russia/India/China, money management specialist. In less than two years. Awe-inspiring, this has been.

You’ve got to hand it to KO: he is definitely thriving in the second of his Decades of Daddy!

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