February 1, 2006
|
ABC Dirt-Cheap Stock Fund |
A New
Closed-End Fund
It has always been my ambition to build a first
class, well-rounded and disciplined investment management company
investing in deep-value, dirt-cheap common stocks.
We established the first two ABC Funds,
Fully-Managed in 1988 and Fundamental-Value in 1989, to concentrate on
Canadian market securities. In 1996, recognizing the increasing thinness
of the Canadian equity market and the likelihood of a bump-up of the
then 10% foreign content restriction we established the ABC
American-Value Fund. Not unexpectedly, we came under client criticism
that we were spreading ourselves too thin in trying to cover a virtual
boundless U.S. market and would be diluting our investment efforts from
our two Canadian funds. Fortunately, this was not the case and our
American-Value Fund has not only consistently ranked in the first
quartile of investment performance but also it has presented numerous
investment opportunities for our two Canadian funds.
In November 2004 we established our closed-end ABC
North American Deep-Value Fund. This fund, due to its closed-end
structure and concentration on less liquid and extraordinarily
deep-valued companies offered excellent investment opportunities in
securities which we deemed inappropriate for our three open-ended funds.
Once more, we came under considerable client criticism. However, we
believed, again, that this new fund would provide many symbiotic
investment opportunities for our other funds. And it has.
Today, I would like to announce a new ABC Funds
initiative, ABC Dirt-Cheap Stock Fund.
ABC Dirt-Cheap Stock Fund will be a common share
fund and it will “go anywhere in the world.” This closed-end equity fund
will invest without any country restrictions; this is particularly
relevant since the Government of Canada completely lifted the 30%
foreign content restrictions for RSPs, pensions etc. in early 2005. This
will make the fund entirely eligible for RSPs and pensions. Given the
fund’s unlimited investment flexibility, we plan to invest in a number
of areas including: Canadian and American stocks; international common
shares; closed-end foreign country funds; US-listed foreign ADS/ADRs;
non-North American initial public offerings; foreign and quasi-foreign
Canadian market-listed equities; etc. Moreover, with the incredible
mushrooming growth of the Chinese and Indian economies, we expect that
these two countries will provide numerous investment opportunities over
the next 5-10 years. ABC Dirt-Cheap Stock Fund will use the same
deep-value principles which we have successfully employed since the
establishment of our first ABC Fund 18 years ago and will become our
international investment prober, our “window on the world.”
It is noteworthy that through our investment
screening process, we regularly uncover a number of extremely
undervalued non-North American common stocks. However, due to our
present investment mandate we have routinely passed over them. In
consequence, much like the start of our ABC North American Deep-Value
Fund 15 months ago, we regard this new undertaking as quite exciting and
believe that it will add a new enriched dimension to our present
analytical process.
Common to our four existing ABC Funds, Royal Trust
will act as trustee/custodian and PriceWaterhouseCoopers will perform
the fund’s annual audit. Similar to our ABC North American Deep-Value
Fund, it is expected that liquidity will be principally provided through
a “virtual exchange” whereby I.A. Michael Investment Counsel Ltd. will
set up a book of interested buyers and sellers. At the end of each
month, on a best efforts basis, we will match up these buyers and
sellers at net asset value. In addition, this new fund will offer
unitholders further liquidity through limited annual redemption rights
at net asset value.
In all honesty, the new ABC Dirt-Cheap Stock Fund
is not for everyone. The fund will have a $150,000 minimum and will have
a longer term investment horizon compared to our three open-ended funds.
The management fee of 1%, while lower than our open-ended funds, will
also include a performance fee of 20% on any returns above 10% (the same
as the ABC North American Deep-Value Fund). The fund will commence April
1, 2006 and will be offered at $10 per unit.
Finally, as a measure of my deep personal and
professional commitment to the ABC Dirt-Cheap Stock Fund I will, once
again, be the first investor. I will commit $2.5 million at the same $10
initial start-up price alongside our clients.
Irwin A. Michael, CFA
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