O'Leary Global Equity Income Fund correlates perfectly with the DJ 30
Decade of Daddy Mirror Fund Bi-weekly Report
Tough market, to say the least. I’ve had my hands full with real work on behalf of our limited partners and portfolio companies, so this bi-weekly report is, well, too late to call it “bi-weekly”. But the theme would have been the same had it been on time. So, as Rick Segal would say: “no harm, no foul”.
Things are holding up well for our Mirror Fund, which is certainly due to the rise in the US$ as just over half of the positions are quoted in USD. Most of our current holdings are down in their home currency, but the harvesting of some early wins has helped keep us in happy land; that plus a 1.2227 C$/US$ currency quote as of publication. And the dividends continue to come in across the board.
Our Decade of Daddy Mirror Fund™ (see launch in post “Decade of Daddy Mirror Fund” July 2-08) is still keeping its head above the $40 million Mendoza line. Let’s see how long that can last now that Europe is in recession for the first time in 15 years.
In the Mirror Fund, we’ve made money in (original currency):
BCE (+8%), Goldman Sachs 2037 Subdebt (flat), JP Morgan (+17%), Royal Bank (+15%) and Teranet (+18%).
Since the fund began we’ve locked in our profits on BMO ($775k, plus $87.5k divi), CIBC ($242k) and Merrill Lynch ($799k) as you’ve read in prior reports. We’ll now sell Teranet at $10.24 given the OMERS deal has won the day. Profit was $307k, plus distributions along the way.
In the red column (original currency):
Bristol Myers (-6%), BNS (-12%), Berkshire Hathaway (-26%), CDN Oil Sands Trust (-48%), Duke Energy (-7%), Eli Lilly (-27%), Merck (-25%); MKS (-23%), Spectra Energy (-19%) and Thomson Reuters (-17%).
Since we launched the mirror fund on Canada Day, the Dow Jones Index is down 2,547 points from the 11,382 level — or 22.4%. Our Decade of Daddy Mirror Fund is up 10.8% during the same timeframe with a value of $44.306 million (about $4 million of the gain is via the change in the USD).
Terence Kevin O’Leary and his asset-gathering team at the real Decade of Daddy Fund™ are suffering with their O’Leary Global Equity Income Fund (OGE-UN:TSX) as the net asset value (“NAV”) continues to trade well below the $12 IPO price. As of yesterday it was at $9.13, a 23.9% decline from the IPO launch. Once again, largely mirroring (hey, a pun) the 22.4% drop in the Dow Jones over the same time period.
Retail investors don’t seem to fear the drop in the OGE fund’s assets, however, as the Units themselves closed at $11.24 last night, just 6.3% below the IPO price. A healthy 23.1% premium to the OGE Fund’s actual NAV.
What I find fascinating is the remarkable correlation of KO’s (as his friends call him) OGE fund to the most basic of market tools, the Dow Jones 30. Since KO is so despising of paying fees to money managers, you’d think that now that he was a portfolio manager himself, he’d try to avoid buying stocks that mirror the performance of one of the world’s three major stock indicies. Perhaps that’s easier said than done, as many academics would remind you that in a down market, most large cap. stocks will roll over in sympathy.
Since August 29th, and using 15 different data points, the NAV performance of KO’s O’Leary Global Equity Fund is 97.103% correlated to the swings in the Dow Jones 30, despite being billed as an “international” fund, rife with European telecom stocks, South American power plants, Greek shipping companies and Chinese steel mills. According to his November 6, 2008 Globe and Mail BNN Market Call pick list, he even likes Bristol Myers Squibb (BMY:NYSE), a 6% holding in our Mirror Fund; and this isn’t the first time he’s talked up one of our existing names (see prior post “O’Leary shows the Decade of Daddy Mirror Fund some love” October 2-08).
Put another way, since the fund started to season, OGE’s NAV performance is almost mirroring the Dow Jones. I guess that’s why the good people at the DTM have given KO a weekly column. With a 97% correlation to the Dow, his views on investing are obviously worthy of their important real estate!
On the TSX, OGE units have traded down merely 4%, which means the units are valued at a 23.1% premium to the value of the assets within the fund itself. Just compare that to the shares of Onex Corp. (OCX:TSX), which are trading at a 32% discount to the estimated NAV, according to a recent research report by Thomas Weisel Partners.
Perhaps Canada’s best best-known buyout fund could learn a thing or two about marketing from Canada’s best known investment Dragon.
(disclosure – this post, like all blogs, is an Opinion Piece)