Friday, January 6, 2012

Karsan Value Funds: 2011 Q4 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 fourth quarter ended December 31st, 2011, KVF earned $0.26 per share, increasing the value of each share to $12.40. Negative currency movements between the Canadian and US dollars held the fund back from further gains. 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 another 26 cents higher. Currency movements are likely to continue to significantly impact short-term results, but their long-term impact is expected to be low.

Contributing to the gains this quarter were positive price movements in the shares of Parlux, hhgregg, and Envirostar (as discussed here, here and here, respectively). As a result, the fund no longer holds positions in these companies.

For the year, KVF was down 5% compared to S&P 500, S&P/TSX and Russell 2000 (total, including dividend) returns of 2.1%, -9% and -3%, respectively. This was a disappointing year for KVF, for a couple of reasons. First, absolute returns (-5%) were negative, thanks in large part to poor price performance in the middle two quarters of the year. Second, as a deep value fund, I would expect KVF to outperform the broader market during bear markets, but it did not do so in 2011 to a satisfactory extent.

It would be easy to blame market inefficiencies and other external factors for the mediocre results this year. So to the extent that I can, I will. As this chart shows, it was a terrible year for value strategies. Fundamental value portfolios were down almost 24% for the year through the middle of December.

But I am hardly off the hook. Some of my poorest decisions of the year are discussed on the Value Fail page, and while the book has yet to be closed on the RIM saga, at this point I think it is safe to say that I overestimated the company's competitive advantages. I expect to learn from these and be better in 2012 and beyond. Thank you for your continued support.

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:


Amit said...

To quote WB:
"The pace of the earth’s movement around the sun is not synchronized with the time required for either investment ideas or operating decisions to bear fruit."

- Amit

Dani said...

"It would be easy to blame market inefficiencies and other external factors for the mediocre results this year. So to the extent that I can, I will"

Well said.

Anonymous said...


I think this is the first time you've expressed your fund's performance on a percentage basis and compared it to some benchmarks. Since you're now doing that, could you post your previous years' results as percentages as well and compare to the benchmarks?


Anonymous said...

One more thing: the performance benchmarks should include dividends. Don't know about S&P/TSX and Russell 2000, but the S&P 500 total return for 2011 was +2.1%.

- aagold

Anonymous said...

I agree with aagold. It would be really helpful if you showed previous years performance and compared it against an index.

Saj Karsan said...

Thanks for your comments, guys!

aa, You are right, total return is a better measure, and I have updated the post to reflect that.

So, what I'm trying to avoid is what I believe to be a systemic problem in the mutual fund industry. That has to do with measuring short-term performance. The reason this is a problem is because once you measure it, it becomes "important", and that's the absolute last thing I want as a focus for the fund. If the fund becomes focused on the short-term, it will fall into the trap that mainstream finance is already in. As such, you won't see the kind of performance measurement you're asking for for at least a few years.

Also compounding the "short-term problem" with this fund in particular is that currency changes (the fund is in Canadian dollars, but most holdings are US dollar holdings) and taxes will also wreak havoc on short-term results, increasing the noise to signal ratio.

Anonymous said...


You've said in the past that you don't want to focus on short-term performance, and I can understand that. But given you have that point of view, why did you then go ahead and discuss your 2011 return and compare to the benchmarks? I don't see the logic behind posting your most recent year's return, but then saying that prior years' returns and/or compound annual growth rate since inception are too short term. I mean, isn't your compound annual growth rate since inception a longer term measure than the return for just 2011?


Dennis The Menace said...

I would like to suggest a mutual fund that specializes in companies involved tn takeovers and mergers. The fund is called the merger fund. This an open ended mutual fund is very unusal in that it only invests in stocks involved in takeovers companies being taken private or companies being acquired by other companies. The fund has a decent long term record. The fund has been in operation for over ten years. I like this mutual fund because its unlike most mutual funds in that its performanace is not based just on the ups and downs of the market.

Saj Karsan said...

Hi aa,

It was meant as a discussion point regarding how the market fared, not as a benchmark comparison that should be used to evaluate whether the fund adds value in the long-term. My apologies for the confusion.

John @ Calling the Puts said...

Hi Saj,

This is one of few dividend investors actually posted their performance against the market. Thanks! This actually helps to see how (or if) dividend investing strategy works (besides from stock selection). Have you calculated sharpe/sortino ratios and see how you did against the market since the inception? Let me know.

Saj Karsan said...

Hi John,

I'm not really using a dividend strategy, it's more of a value strategy (e.g. low P/E or low P/B). I don't believe either of those ratios is useful because I don't believe volatility = risk.