Decade of Daddy Mirror Fund Annual Report

The end is nigh.

The Decade of Daddy Mirror Fundâ„¢ had a decent year, it would appear, particularly when compared to its benchmark. Our lack of churn has worked out fine, and the dividends continue to roll in. Choosing decent dividend paying stocks, and holding them through thick and thin, has actually worked. Who knew?!? 😉

Having put it all out there for your critical eye, it is with some relief that 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 relatively strong C$ (1.029 to par) depresses performance versus last quarter, but that’s been our challenge throughout this process. Just like you, investing in unhedged US$ denominated stocks has reduced returns.

Our Mirror Fund was up 6.8% to $42.7 million as of the one year mark, and is now up 22.7% to $49.082 million as of the last close. During the same timeframe post-launch (Canada Day 2008), the Dow is up 1.7% and the S&P 500 is off 0.2%.

In the Mirror Fund, we’re making money in BCE (+2.7%), BMO (+1.4%), BNS (+16%), Bristol Myers (+20%), Goldman Sachs 2037 Subdebt (+41%), Duke Energy (+2%), JPM (+2%), Merck (+3%), MKS (+90%), Spectra Energy (+17%), TD Bank (+13%) and Thomson Reuters (+3%) {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. We’ve also taken losses on Canadian Oilsands and Eli Lilly (see prior post “Decade of Daddy Mirror Fundâ„¢ takes its medicine” Dec 5-10).

In the red column (again in home currency):

Berkshire Hathaway (-13%) and Royal Bank (-7%).

Over at OGE.UN:TSX, the trading price of the fund (plus distributions) is still trailing the S&P, Dow Jones and our little test fund. On a NAV plus distributions basis, OGE (aka the Decade of Daddy Fundâ„¢) is now down only 1%, but still trailing the performance of both the Dow and S&P 500.

The unit price of OGE is down 11% since it was launched in July 2008, and now sits around $10 as compared to the June 2008 $12 IPO price. Add the $1.76 in cumulative distributions since launch; bake that into your return and you’re down 2%.

With us up 22.7%, and the OGE global equity investment strategy off 2% (including the benefit of monthly cash distributions), we’re still adding 2,470 basis points of “value” in the venacular of the fund management industry.

OGE’s NAV correlation with the Dow between August 29, 2008 and the last close remains a stellar 93.9%, but one can take no delight in the fact that the fund’s NAV continues to track one of the world’s best known benchmarks with almost a mirror-like perfection.

Not that anyone associates past performance with future opportunity. Canada’s best known Dragon has raised more than $1 billion from Canadian investors over the past 30 months. At least three of the seven closed end funds appear to be making investors money on a net basis, even if the original fund (OGE) isn’t. In the world of money management, I would say that raising a billion is a resounding victory; on any level, it is definitely a Herculean accomplishment.

$15 million of annual management fees for many years to come, with at least half of the pie going to KO himself for leading the charge. That’s a handsome outcome, and one that started on BNN Television just four short years ago. Jack Fleischmann should’ve been granted a warrant on that career.

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