Friday, July 3, 2020

Karsan Value Funds: 2020 Q2 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 second quarter ended June 30th, 2020, KVF gained $3.28 per share, increasing the value of each share to $24.21. Adjusted for taxes and currency, this represents a return of 20%, which is on the order of the 20%, 16% and 25% posted by the S&P 500, S&P/TSX and Russell 2000 indices, respectively.

The market's gains were nearly entirely driven by increases in the share prices of glamourous growth stocks, like Apple (28x P/E) and Microsoft (35x P/E). While these are great companies, their asking prices suggest everything needs to go well for many, many years for an investment to work out. Things very well may work out just so, but that is considered too risky a bet for KVF's portfolio.

Incidentally, KVF has owned both of these companies in the past. In 2016 and 2012 respectively, Apple and Microsoft both traded at P/E's under 10 ex-cash. The market had temporarily soured on these companies, and probably will again.

But in the meantime, when this segment of the market has such a strong quarter, it is unlikely that KVF's return will be able to keep up. That KVF was able to generate a similar return this quarter is a highly satisfactory result.

At the end of the last quarter and the beginning of this quarter, KVF went on the offensive, gobbling up securities at panic prices and pushing the cash position to zero. This strategy paid off, as a number of securities bounced higher as the panic subsided. Gains were harvested in the shares of Perdoceo and Dundee Preferreds, among others.

Many securities remain depressed in price, however, allowing many of these gains to be re-invested in securities at attractive prices. Nevertheless, the cash position has risen into the high single-digits, as prices are no longer as attractive as they were at this time last quarter.

Currency losses reduced the value of each share by $0.39 this quarter.

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:


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