Ways in which Cymbria and mutual funds differ include:
Cymbria has greater investment flexibility. It’s an investment corporation that can buy (or short) publicly traded companies, purchase privately held businesses or use leverage. This provides Cymbria with a much bigger universe of investment choices.
Fixed pool of assets
Cymbria raised $234 million through its initial public offering. This fixed pool of assets will grow (or shrink) as a result of changes in investment value. Cymbria’s asset size may also decrease due to share repurchases under the NCIB and LRO. In contrast, investors can purchase and redeem units of a mutual fund, affecting the size of its investment pool.
Buy/sell price determined by the market
Funds are typically bought and sold at their NAV, which reflects the underlying prices of their securities. Since Cymbria trades on a stock exchange, its price reflects market-determined value.
Cymbria shares are bought and sold in the open market, and investors should consider potential liquidity constraints. Small-capitalization companies like Cymbria tend to be much less liquid than their larger-cap counterparts. Transacting a sizeable volume of shares without moving their price can prove difficult. As a result, it may take several days or even weeks to buy or sell a large number of shares.
Comparatively, liquidity isn’t an issue for mutual funds that allow investors to redeem their units at NAV. Cymbria’s LRO aims to diminish liquidity constraints by giving shareholders the option of disposing of their shares from time to time at a price close to NAV.
Cymbria can buy back shares if its valuation warrants it. We believe buying back Cymbria shares at an attractive discount to its NAV makes sense for our shareholders.
A mutual fund’s income and realized capital gains are typically distributed to unitholders annually so that unitholders (and not the fund) pay the associated income taxes. As a taxable corporation, Cymbria doesn’t currently pay annual distributions or dividends. Investors can hold Cymbria in a non-registered account, receiving no taxable income during the year. Since Cymbria’s corporate tax rate is currently lower than Canada’s highest marginal personal tax rate, having Cymbria incur taxes could be more tax efficient than owning a comparable fund in a non-registered account.
Ownership stake in EdgePoint
Cymbria has a 20.7% stake in privately held EdgePoint. Cymbria initially received this ownership stake at book value (approximately $500,000) to allow Cymbria investors to participate in EdgePoint’s growth. This opportunity is only available to Cymbria investors and EdgePoint’s internal partners.
Benefits to owning EdgePoint include:
Dividends: Cymbria receives dividends from EdgePoint (currently semi-annually)
Value: Cymbria participates in EdgePoint’s growth
To date, EdgePoint has been the single-largest contributor to Cymbria’s performance.