O'Leary promises to repeat global fund "success" with new domestic offering

O’Leary Facts & Figures Week Part Five

The world of investing is fraught with a variety of challenges for individual investors. They rely on the pros to keep them away from the more obvious blind alleys. You wouldn’t perform your own colonoscopy, so why would you be your own financial advisor?

But once you pick an investment advsior, your advisor needs product to sell. If you are a buy-and-hold investor, there won’t be fees generated if all you do is buy and hold good dividend paying stocks for the next 10 years.

Thus the need for new product, complete with an annual servicing fee (aka a “trailer” in the mutual fund world).

This new era of Rock Star Portfolio Managers is driven by the age of business television. BNN and CNBC raise the consciousness of the investing public. A key beneficiary of this trend is certainly CBC Dragon and Globe and Mail columnist Kevin O’Leary. Over the past 12 months he has leveraged his ubiquitous nature to build funds for those retail investors looking for Global Equity Income (“Get Paid While You Wait“), Infrastructure, and Global Income.

Despite the fact that each is below its IPO price, Canadian investment banks are in the market once again, pitching another theme to Mr. O’Leary’s large base of loyal followers.

This fund (the O’Leary Canadian Income Opportunities Fund) is designed to appeal to the investor who’d like to have their capital put into names that they know, close to home.

Here’s a summary from the preliminary 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.”

If you’ve been paying attention, this might strike you as an odd thing for KO to be marketing. It was just last summer when the Canadian stock market was been poo-pooed in the OGE broker’s video promo for having a paucity of investment opportunities — thus the need for the O’Leary Global Equity Income Fund (“OGE”). The one that we created our Mirror Fund in honour of.

This from last year’s OGE prospectus:

“The Manager and the Portfolio Manager believe that global investment opportunities provide investors with an important source of investment diversification, income and appreciation. Globally, there are over 6100 issuers with a market capitalization of over $1 billion, across a wide range of industry sectors. However, in Canada there are fewer than 220 such issuers and they are concentrated in the financial and resource sectors making it difficult for investors to achieve true diversification in their portfolios. The Manager and Portfolio Manager believe in the “get paid while you wait” approach to investing globally and believe that global markets for dividend-paying equities are currently very attractive.”

Perhaps the global stock meltdown has turned up some attractive investing ideas in Canada, and Mr. O’Leary no longer feels comfortable loading them into his Global Equity Fund (see prior post “O’Leary “Global” Equity fund loads up on old Canadian favourites” February 13-09). But, as for intellectual consistency, this new fund is a head-scratcher. He’s now against “true global diversification”, having just raised $40 million last year on the basis that this was the way to invest your dough?

As for the notion that the new Canadian fund will be based on the theory of “Get Paid While You Wait”, that investment cliche has now thrown overboard. With a portfolio turnover of 253% in the OGE fund, there hasn’t been much “waiting” to speak of (see prior post “Portfolio churn an early hallmark of O’Leary’s Global Equity Income Fund” April 14-09).

Mr. O’Leary is a very talented and convincing television personality (see prior post “Kevin O’Leary is a rock star” June 30-08). The fact that our cataonic Decade of Daddy Mirror Fund has outperformed his Global Equity Fund over the past 10 months, or that he loaded up on Canadian equities in OGE (against the very promises of the IPO prospectus), has had no bearing on the appetite of retail investors for his last two offerings.

People just love him.

The drop in the global markets provides a convenient cover story to explain away the post-IPO losses. Even if those losses far exceed the drop in the Dow Jones 30 and S&P 500 benchmarks.

Can we expect a new Globe and Mail ROB section feeder columns touting his latest fund? Remember this doozy?

Found on page B12 in the March 4th edition of the Globe and Mail’s business section? The instalment, called “Forget the shares, GE debt is the thing to watch” was little more than free advertising from Greenspon & Co. for the overallotment option on Mr. O’Leary’s Globe Income Opportunities Fund (see prior post “Decade of Daddy Mirror Fund™ Report” March 4-09).

How have the shares of General Electric (GE:NYSE) performed since Mr. O’Leary recommended that you buy its debt instead of the equity?

They’re up 77%.

Mr. O’Leary’s OGE net asset value is up just 4% during the same timeframe. Even though the Dow has risen 23% and the S&P 500 is up 27% since March 5th.

And now Mr. O’Leary is going to turn his stock-picking prowess on Canadian mid-cap and large cap issuers, such as BCE prefs, Brookfield common shares, Fairfax bonds and Macquarie Power and Infranstructure Fund Units?

You betcha.

MRM
(disclosure: this post – like all bogs – is an Opinion Piece)