Q&A: O’Leary fund

Question: Could you provide your thoughts on the O’Leary Canadian Income Opportunities Fund 2 (TSX: OCH.UN). I believe it’s trading around $9.90 a share. – Tony S.

Gordon Pape answers: This is a relatively new closed-end fund, launched in December 2010 at a price of $12 per unit. It invests in a diversified portfolio of corporate bonds, convertible debt securities, preferred shares, income trust units and dividend-paying securities. The equity focus is on mid- to large-cap issues.

As of March 31 (the most recent update issued by the company) the portfolio showed a 30.9 per cent weighting to the energy sector with names like Penn West, Veresen, and Crescent Point among the largest positions. REITs were the next largest sector at 19 per cent of total assets followed by financials (12.4 per cent) and industrials (12.9 per cent).

The fund pays monthly distributions of $0.08 per unit ($0.96 annually) which implies a yield of 9.7 per cent at the current price. But beware! Since the shares came out at $12, they have lost $2.10 or 17.5 per cent of their initial value. So original investors are actually out-of-pocket to this point — the juicy cash flow is just some of their own money being paid back to them.

This fund is scheduled to become an open-ended mutual fund trust at the end of this year, at which time it will be delisted from the TSX.

Taking all this into account, it is not a fund I would recommend.

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