Friday, October 4, 2013

Karsan Value Funds: 2013 Q3 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 third quarter ended September 30th, 2013, KVF earned $1.06 per share, increasing the value of each share to $16.78. As a result, this was a good quarter in both absolute and relative terms.

The fund's portfolio has recently benefited from price gains in Urbana, Surge Components, Lexmark, Coast Distribution, Alco Stores, Aastra, iGo and PMC Commercial Trust (discussed here, here, here, here, here, here, here and here, respectively). Following these price moves, the fund no longer has any positions in these firms.

Share performance in the fund's portfolio was better than the overall results would indicate due to currency losses experienced during the quarter. Had the CAD/USD exchange rate finished the quarter at the same level at which it started the quarter, earnings per share would have been 28 cents higher. Currency effects are likely to continue to play a significant role in short-term (e.g. quarterly/annual) periods, but are unlikely to be a material factor in the long-term.

It has gotten even more difficult to find new ideas than it was last quarter. One consequence is that the fund's portfolio contains more smaller and Canadian companies than it did a year ago, as it is now harder to find negative sentiment (and the resulting margins of safety that follow) among large US companies.

Whereas in recent years, far more time was spent analyzing undervalued companies than identifying them, today identifying undervalued companies has become rather time-consuming. An emphasis has therefore been placed on turning over more rocks and doing so in an efficient way, so that the portfolio can be kept undervalued without reducing margins of safety. This will hopefully serve as protection for when market sentiment turns negative.

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 thousands of $CAD (except share and per-share amounts):


Anonymous said...

Congrats on a great quarter Saj!


Anonymous said...

Why is your portfolio only barely beating the S&P this quarter despite a half-dozen amazing results?

Were there some bankruptcies or something?

Saj Karsan said...

Thanks, BF!

Anon: Currency and taxes. Also, sometimes the companies sold in a given quarter already saw their biggest moves in previous quarters, so using the ones I discuss as having sold out of does not represent a good proxy for the latest returns. Any bankruptcies or shares sold for losses would be discussed here were they to have occurred (e.g. fourth paragraph of these results)