Friday, April 8, 2011

Karsan Value Funds: 2011 Q1 Results

Karsan Value Funds (KVF) is a value-oriented fund, as described here. Due to securities regulations, the fund is not open to the public at this time. Should that change in the future, there will be an announcement on this site.

For the first quarter ended March 31st, 2011, KVF earned $0.72 per share, bringing the value of each share to $13.77.

The market had yet another strong quarter. This will make the results of long-only funds look good, but it can also allow complacency to set in. A rising market results in a perception that risk is low, when the reality is that downside risk increases as prices rise. As such, the true test of whether this (or any other) fund is adding value will take place over a period of several years, through both rising and falling markets. So far, the fund has only been in existence for 1.75 years.

Gains in former fund holdings Imation (discussed here), Envoy (discussed here), and Kirkland's (discussed here) helped contribute to KVF's strong performance in the quarter.

These gains were offset by realized losses in Belzberg (discussed here). Over the course of the fund's ownership of shares in Belzberg, the company managed to lose a tremendous amount of value. But thanks to a very generous margin of safety offered by the market at the time of purchase, the fund was saved from more impacting losses.

Once again, currency markets continued their assault on the fund's performance. Had the USD/CAD exchange rate finished the quarter at the same level at which it started the quarter, earnings in the quarter would have been $0.19 higher. Despite taking some heavy currency losses over the course of the fund's young lifetime, the fund will not alter its strategy of not hedging its currency risk for the reasons outlined here.

Looking ahead, the market in the aggregate appears quite fully priced by a number of measures, not least of which is the PE 10. However, there nevertheless appear to remain a number of undervalued issues in certain areas of the market that the fund will attempt to exploit.

KVF's income statement and balance sheet are included below (click to enlarge). Note that securities are marked to market value, and amounts are in $CAD:


Paul said...

Congrats, Saj! If you can keep up during strong markets, but not lose as much in down markets, you're doing it the right way.

By the way, if/when you open up your fund to the public, please allow US citizens and not yet wealthy people in. :)

Anonymous said...

Well Done!!!!

I like the unhedged USD vs. CAD anyway as the dollar would rally on a decrease in risk appetites (and equity prices) so you have an implicit hedge of sorts.

Anonymous said...

very impressive . Congrats !

Anonymous said...

Looks like someone has a typo error in their quarterly report... :-(

- - -
"Karsan Value Funds: 2011 Q1 Results
By Saj Karsan, Friday, April 8, 2011,
For the fourth quarter ended December 31st, 2011, KVF earned..."
- - -

?? First Quarter ending December, 2011 !! ??


Saj Karsan said...

Thanks guys! Nice catch, Dave; I have corrected it.