| Fund Company | O’Leary Funds Management LP |
| Fund Type | Global Neutral Balanced |
| Rating | TBD |
| Style | Value |
| Risk Level | Medium |
| Load Status | Optional |
| RRSP/RRIF Suitability | Fair |
| TFSA Suitability | Fair |
| Manager | Connor O’Brien since June 2011 |
| MER | 2.24% |
| Code | OLF 2301 – Front End Units OLF 2331 – DSC Units |
| Minimum Investment | $500 |
Analysis: While this is officially classified as a global balanced fund, it is in fact, one of the few U.S. focused balanced funds that are available to investors. Launched in June 2011, it invests in equity and debt securities of U.S. issuers. It is available in a version which hedges the currency exposure and a version which does not.
The well diversified portfolio is very actively managed with portfolio turnover that was more than 140% in 2011. Within the equity sleeve, it can invest in companies of any size, and looks for those that pay a dividend. For the fixed income portion, the emphasis is on corporate bonds, floating rate notes and high yield issues.
In managing the fund, they use a combination top down, bottom up approach. The top down analysis is used to identify the most attractive sectors and asset classes. Once they are identified, bottom up, fundamentally driven, value tilted approach is used to find companies that are trading at less than their intrinsic value.
The portfolio is fairly neutral in its positioning, holding approximately 48% in U.S. equities and 47% in U.S. corporate bonds. The equities are currently focused on large cap names as they believe that they will provide better downside protection in the event of any market pullback. It also has a significant exposure to REITs for their yield contribution to the portfolio. This is important since it pays a monthly distribution of $0.042, which at current prices works out to a yield of approximately 5.3%.
Given that the fund is just over a year old, it is far too early to make a definitive call on its performance, but the early indications are not particularly favourable. The longer term numbers are disappointing, while short term things have improved.
Based on our analysis, we believe that with its emphasis on high yield debt that it has the potential to be very volatile, given that should we experience periods of high volatility, the high yield holdings will not provide the same backstop that you would get from government or even investment grade corporate bonds.
It is also very expensive and quite small. Assets in the fund were approximately $10 million. O’Leary has chosen to absorb a significant portion of the operating costs of the fund. If they were to not do this, the MER would be well north of 5%. If the fund does not achieve big growth, there is a high probability it will be merged with another fund or closed down as it will be unprofitable to keep in operation.