For the second quarter ended June 30th, 2010, KVF earned $0.03 per share, bringing the value of each share to $11.76.
On an absolute basis, these results are uninspiring. But with most equity markets having fallen in the high single-digits or low double-digits this quarter (e.g. the S&P 500 is down 12% for the quarter), the fund's relative performance was strong. If KVF were to outperform the market by this margin every quarter, shareholders would realize exceptional returns. Unfortunately, as nice as it would be, it's unlikely that the magnitude of this relative out-performance can be sustained.
There were a few reasons for the positive results relative to the market. First, gains in currency this quarter helped somewhat reverse currency losses which have accumulated over the previous three quarters. Had the USD/CAD exchange rate finished the quarter at the same level at which it started the quarter, earnings would have been $0.26 lower than they were.
Second, as markets were strong last quarter, the fund became a net seller of securities and thus built up a cash position. As a result, as KVF's stock portfolio fell with the markets this quarter, that cash position helped stabilize the overall portfolio. Furthermore, as markets fell, new positions were added and some existing positions were increased. Some of these positions have bounced off their lows, thus having a positive effect on the portfolio.
Finally, there were some stocks in the portfolio that bucked the trend of the falling markets. Strong moves in stocks such as Adams Golf (discussed here) and Quest Capital (which has been discussed extensively now on this site) helped counteract the downward moves in the general market.
Looking forward, KVF is still capitalized such that it is in a position to take advantage if more market opportunities should present themselves, despite the fact that it was a net buyer this quarter. At the same time, KVF owns several stocks deemed to be undervalued.
KVF's income statement and balance sheet are included below. Note that securities are marked to market value, and amounts are in $CAD: