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moneysense.ca, 25/05/09
Cymbria Corporation (TSX: CYB)
EdgePoint Mutual Funds, which offers a short line up of just four equity funds, is a new mutual fund short backed by Trimark founder Bob Krembil and star managers Tye Bousada, Patrick Farmer and Geoff MacDonald. While EdgePoint will be an interesting fund company to watch, not least because of the pedigree of its founders and the promise to focus on investment returns rather than shareholder returns, it is not the focus of this post.
The founders of EdgePoint found an interesting way to launch their mutual fund company. They floated a closed-end fund on the TSX exchange last fall called Cymbria Corporation (TSX: CYB) that attracted $222 million in capital. Cymbria provides the founders with a permanent pool of capital to invest as closed-end funds, unlike mutual funds, cannot be redeemed. On its own, Cymbria might be attractive to fans of active management due to its low fees (the management fee is waived for the first three years but there is a service fee paid to registered dealers of 1% and operating expenses of the fund), co-ownership (the founders have invested $22 million of their own money), concentration etc. However, to sweeten the offer to Cymbria shareholders, the founders offered a ownership stake in EdgePoint that in the final analysis was set at 23%. In other words, Cymbria is a closed-end fund run by superb managers with a 23% stake in EdgePoint mutual funds thrown in.
A couple of points should be noted regarding the risks in addition to the usual warnings about active management: Cymbria (CYB) is thinly traded and relatively illiquid and closed-end funds sometimes trade at significant discounts to net asset value (NAV) and there is no guarantee that CYB won’t do so. As of May 22, 2009, Cymbria had a NAV of $10.50 and was trading at a slight premium at $10.85. You can find the prospectus here.
moneysense.ca, 25/05/09
I am a big fan of these founders, and this particular investment. For disclosure: I own it myself, and have the majority of my clients in it to some degree.
To me, this is an investment that in 10-20 years people will say “if you had put $10K in this back in 2009, it would be worth $xx today!” – much like they do with Berkshire Hathaway shares, etc.
Ultimately, EdgePoint should deliver cash dividends to Cymbria which they will use to buy more publicly traded companies. Over time, this extra return will be huge. Berkshire has operated the same way – insurance company makes profits and Warren Buffett uses those profits to buy more public shares shares of companies such as Coke, Gilette, Wells Fargo Etc. This extra return is very powerful over time.
Second, CC mentions in his post that the price of CYB will likely trade both above and below its NAV (the value of the public companies, but NOT including the 23% of EdgePoint).
Think about that – when it trades at or below the NAV, the Cymbria investor is getting the EdgePoint ownership for free! I would expect the managers to see this opportunity and take advantage of it by having Cymbria Corp buy back its own shares. Over time this too will be very powerful in that the 23% of EdgePoint will be shared by fewer and fewer remaining shareholders – it is difficlt to imagine just how powerful this will be over time, but I am sure it will be another key success factor talked about in 10-20 years time.
CC’s site is very pro on passive investing – but for anyone who invests actively for some or all of their portfolios would do well taking a close look at this. I have been doing this for close to 20 years, and I have never found any investment more compelling. It is run by extremely ethical people, they are talented, they co-invest their own money in it, the fees are low, and the portfolio is small and can only grow by performance.
What elese could an active investor ask for?
“It is run by extremely ethical people, they are talented, they co-invest their own money in it, the fees are low, and the portfolio is small and can only grow by performance.
What elese could an active investor ask for?”
The only comment I’ll add for active investors is to also look for low turnover. All too often, active funds turnover their investments at a rapid pace, incurring not only trading commissions but also taxes. It may not be realistic to expect turnover to be as low as index funds but lower turnover indicates that the manager is truly buying stocks with a long-term view in mind.
That is a good point which I should have added the following…..
If the manager’s former trading records at Trimark are any indication of what Cymbria will see, investors will take comfort to see their turnover will likely be very low. At Trimark, trading costs were a super-low 0.05% typically (many high turnover funds can add 2.0 – 3.0% in costs).
Furthermore, this is a closed-end fund so no trading needs to be done when cash comes in with new purchases or leaves due to redemptions. This will also keep it low.
[...] financial advisor, who wishes to remain anonymous, sent the following e-mail on reading my post on Cymbria. I’m publishing it with permission to present the other side of the [...]