Blogs & Comment

The Kevin O’Leary funds

The United States has Jim Cramer; Canada has Kevin OLeary. Both are balding, clever and brash. They are on television because they can attract large audiences within the investing community — although they do seem to havesome anti-fansas illustrated in the comments section at the end of this O’Leary profile on the Globe and Mail website.
The one big difference between the two seems to be OLearys endeavours to monetarize his fame by launching a collection of investment funds. They promise to provide both high yield and capital preservation; he sees his funds (according to a Canadian Business article) as offering a home for baby-boomers and retirees who relied on the high yields paid by income trusts.
While I do respect O’Leary’s abilities as aself-made-millionaire, his investment funds do give me concerns. And beyond those mentioned in a Globe and Mail article(annual fees exceeding 3% and the actual portfolio manager, Connor O’Brien, being something of an unknown).A fundamental principle of investing is that there is generally a trade-off between risk and return. If you want safety of principal, you have to accept a lower yield; if you seek a higher yield, you need to take on more risk. So I tend to be skeptical of offerings that aim to deliver both.
His funds are seen as places to which income-trust refugees can flee. Yet, income trusts provided their high yields and capital safety thanks to regulatory arbitrage, which for a time allowed them to dodge taxes. Then the government closed the loophole and the artificiality of the situation was exposed. Now the OLeary funds purport to offer a replacement (without the tax arbitrage). Im not eager to jump in. My preference would be to keepcosts low and accept the trade-off between return and risk. Or, if units are purchased, they should only be to diversify the income portion into a higher risk pocket (making sure the weighting wasnt excessive).