Reflections on the week ending May 16, 2010

“Invest in Fund Firms To Beat Their Funds”. That was the headline of an article in the Wall Street Journal on May 6, 2010 (by Sam Mamudi, page c9; CLICK HERE FOR FULL ARTICLE Quoting from the article, “From the latest quarter to the second quarter of 1986, shares of fund companies easily outperformed almost all other stocks as well as their own funds.”

• “Leading the way: Eaton Vance Corp. , whose stock rose nearly 7,000% cumulatively over that roughly 24-year span. T. Rowe Price Group Inc. rose almost 5,000%, while Franklin Resources Inc. rose about 3,700%. Investors in those companies’ best mutual funds didn’t fare as well. The top-performing fund from each company over the same period was Eaton Vance Worldwide Health Sciences Fund (trading symbol ETHSX), with a total cumulative return of about 1,500%. Franklin Mutual Quest Fund (MQIFX) rose almost 1,300%, and T. Rowe Price Capital Appreciation Fund (PRWCX) gained close to 1,200%. Those are impressive results, albeit from the finest funds out of hundreds that these three giants offered over the past 24 years. By contrast, the S&P 500 index rose 366.2% in the period.”

• To summarize, cumulatively over the last 24 years:
• The fund company, Eaton Vance Corp rose nearly 7,000%
• The top-performing fund of the fund company, Eaton Vance Worldwide Health Sciences Fund rose about 1,500%
• The index, S&P 500 rose 366.2%

This is not a new phenomenon. Ironically, the empirical results come as a surprise to most people.

The following companies of interest reported results:

• CI Financial reported its results for the first quarter ending March 31, 2010. Assets Under Management at March 31, 2010 were $90.6 billion, 26% higher than the prior year. Adjusted Earnings per Share for the quarter of $0.27 was 29% higher than the prior year.

• DundeeWealth reported its results for the first quarter ending March 31, 2010. Assets Under Management at March 31, 2010 were $38.8 billion, 51% higher than the prior year. Investment gains in the most recent quarter and investment losses in the prior year quarter, make the profits at the corporate level less comparable. EBITDA for the Wealth Management segment of $55 million was approximately 93% higher than the prior year quarter.

• Mundra Port reported its results for the year ending March 31, 2010. Consolidated Net sales of Rs. 13.8 billion and Diluted EPS of Rs. 16.81 compare against the prior year’s Rs. 11.9 billion and 10.79, respectively, representing year over year growth of 16% and 56%, respectively. The approximately 3.5 times ratio of EPS to Revenue growth is indicative of the operating leverage we see as inherent in the business model.

• Adani Enterprises also reported its results for the quarter and year ended March 31, 2010. As the largest part of this conglomerate is its subsidiary, Adani Power, and since Adani Power is still in the early stages of commissioning power generating plants, we were not looking for significant revenue or EPS growth at this time. Consolidated EPS for the quarter of Rs 7.24 was 16% higher than the prior quarter ended December 31, 2010.