Decade of Daddy Mirror Fund™ Quarterly Report

The Decade of Daddy Mirror Fund™ continues unabated, even if there’s been but one trade this year. Talk about a lack of conviction about the market, but the entire point of our test fund was to see if churning the portfolio added Alpha — or if choosing decent dividend paying stocks, and holding them, actually worked.

Voila — we continue to beat the key indicies and our true benchmark — OGE.UN:TSX. (For those who can recall that far back, we coined and copyrighted the phrase “The Decade of Daddy Fund” back in the summer of 2008. And our friend KO approves, since he’s used the phrase on television himself!)

The drop in the US$ from 1.05 to 1.029 depresses performance versus last quarter, but that’s the life of an unhedged equity investor.

Our Mirror Fund was up 6.8% to $42.7 million as of the one year mark, and is now up 21.2% to $48.479 million as of yesterday’s close. During the same timeframe post-launch (Canada Day 2008), the Dow is down 5.2% and the S&P 500 is off 9.5%.

In the Mirror Fund, we’re making money in BMO (+6%), BNS (+10%), Bristol Myers (+22%), Goldman Sachs 2037 Subdebt (+49%), Duke Energy (+2%), Merck (+4%), MKS (+45%), Spectra Energy (+4%), TD Bank (+13%) and Thomson Reuters (+6%) {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 (-5%), Berkshire Hathaway (-11%), CDN Oil Sands Trust (-50%), JP Morgan (-8%), Eli Lilly (-16%) and RBC (-5%).

T’was neat to see that our original BMY pick made the recent Goldman Sachs “golden 10” for dividend growth (hat tip to John Heinzl). And the Cantech Letter’s Moneysaver picked MKS as one of the best tech dividend stocks (behind paywall).

Over at OGE.UN:TSX, the trading price of the fund (plus distributions) is still trailing the Dow Jones and our little test fund (but not the S&P). On a NAV plus distributions basis, OGE (aka the Decade of Daddy Fund™) is now down only 4%, which is a bit better than both the Dow and S&P 500 (that excludes the dividends you’d have received from the shares in the indicies as that would take too much work).

The unit price of OGE is down 20% since it was launched in July 2008, and now sits around $9.55 as compared to the June 2008 $12 IPO price. Add the $1.61 in cumulative distributions since launch; bake that into your return and you’re down 7%.

With us up 21.2%, and the OGE global equity investment strategy off 7% (including the benefit of monthly cash distributions), we’re still adding 2,820 basis points of “value” in the venacular of the fund management industry.

But we didn’t charge y’all management fees!?!?! This is true, and that improves the return, which is kinda the point of this exercise.

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 17% off our return since inception figure (rough est.). That represents just over half of the positive delta between our 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 93.9%; the fund’s NAV continues to track one of the world’s best known benchmarks with almost a “mirror-like” perfection.

Not that any of this matters.

Canada’s irrepressible Dragon has raised about $900 million from Canadian investors over the past 27 months. Two of the newer funds appear to be making investors money, even if the original fund, OGE, isn’t. And that’s the goal we all share: making an appropriate return for the risk assumed on behalf of our investors. For understandable reasons, fund managers across Canada are applauding what KO has accomplished.

You’ve got to hand it to him.

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