The Chou RRSP Fund (Trades, Portfolio) began in September 1986 and invests in Canadian equities. Its investment strategy involves a detailed analysis of individual companies with little emphasis on short-term market factors. The portfolio is generally concentrated in 25 to 35 companies, and no more than 49% of net assets are invested in U.S. equities.
Francis Chou founded his flagship Chou Associates Fund in 1981 as an investment club with start-up capital from six co-workers from Bell Canada. In January, Chou joined GuruFocus for a Q&A to answer questions from readers; the interview can be read here.
In 2014, the fund returned 14.2% for the Series A units, while the S&P/TSX Total Return Index returned 10.6% in Canadian dollars.
According to the fund’s year-end review, the weakness of the Canadian dollar against the U.S. dollar had a positive impact on returns. During the second half of the year, the fund purchased one new holding, added to two stocks, and trimmed its position in one of the major positive contributors to the fund.
New buys
Dundee Corp (TSX:DC.A, Financial)
Chou’s only new purchase during the second half of 2014 was 100,000 shares in Dundee Corp, at an average price of C$14.96 per share.
Dundee is an asset management company whose core competencies include real estate and infrastructure, energy, resources and agriculture.
The stock has declined 26% over the past year and now trades at C$11.73. Net income over the trailing 12 months was C$-119.5 million. The following chart shows the annual net income trend.
In FY 2013, EBIT per share was C$-1.41, down from C$-0.26 the year before.
Adds
Reitmans (Canada) Ltd. (TSX:RET, Financial) (TSX:RET.A, Financial)
Chou added 107,700 shares in RET for an average price of C$6.00, bringing his total stake to 215,300 shares. He also bought 73,600 shares of the RET.A stock for an average C$6.28 per share, bringing the total to 440,800 shares.
Reitmans is a women’s specialty apparel retailer with operations under six banner names: Reitmans, Smart Set, RW&CO., Thyme Maternity, Penningtons and Addition Elle. Its stores are located in malls and strip plazas across Canada.
The stock price has increased 3% over the past year and is currently priced at C$5.90. When compared to the Peter Lynch earnings line, the stock appears to be overvalued.
In FY 2014, net income was C$10.8 million, down from C$26.4 million the year before. Over the past five years, net income has declined more than 38%.
TVA Group (TSX:TVA.B, Financial)
Chou also added 50,000 shares to his stake in TVA Group for an average price of C$7.57 per share. His total holding now consists of 783,128 shares.
The stock has declined 39% over the past year and is currently priced at C$5.50. TVA is incorporated in Quebec and operates in the television and publishing business sectors. It operates North America’s French-language TV network, while the publishing segment has trademarks in more than 50 magazines and 11 websites.
In 2014, the company reported a loss of C$41.1 million, compared to net income of C$15.7 million the year before.
Looking at the balance sheet, the current assets amount to C$220.6 million, while current liabilities is C$253.6 million. The current ratio of less than 1 indicates TVA cannot cover its short-term obligations.
Reductions
Interfor Corp (TSX:IFP, Financial)
Chou reduced his stake in Interfor Corp by 100,000 shares, selling them for an average price of C$17.76 per share. He has trimmed the holding for the past two periods since the stock price has been consistently on the rise.
Over the past year, the stock has risen 14% and currently trades at C$19.15 with a P/E ratio of 31.9 and P/S ratio of 0.87.
After six years of negative earnings, Interfor posted positive net income in both 2013 and 2014, at C$42 million and C$41 million respectively.
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