My Approaches & Beliefs:
I believe that people can do better with their investments if they have more investment options. I have recently moved my business from a mutual fund only dealer to Aligned Capital Partners Inc. which is securities licensed so I can access a much wider range of investments for my clients.
- Risk is the possibility of real loss of capital and not just volatility
- You should understand more so you are not dependent on anyone
- I need to know you to help you manage your cash flow
Objectives of Investing
- Long term investing – objective should be to grow your capital
- Short term investing – objective should be to protect your capital
- Minimizing volatility (also known as risk) is also an objective.
What I Consider When Choosing a Mutual Fund
Here are some of the things that I look for when selecting a mutual fund.
Structural Attributes of Fund Company:
Who actually owns the mutual fund management company is important. A management company that wants to maximize their profits may clash with their fund managers and performance of their funds.
- Manager Must be Experienced – You are buying professional money management when you put your money in a fund. Make sure the manager is among the best. Funds managed by experienced fund managers outperform by 1.5% per quarter. (Source: The value of experience for mutual fund managers white paper by Kempf, Manconi, Spalt, 2013) I have a belief that managers should be bald or grey! This is a competitive industry and managers get fired if their numbers are no good. Old managers have managed to make the cut for long periods of time.
- Company must be “investment lead” and not lead by marketing or shareholders of the fund company.
- Privately held – employee owned firms can balance the needs of the investor with the demands of the shareholders
- Size matters – Big funds are too difficult to manage– A fund’s performance is inversely correlated with assets under management. (Source: Does fund size erode mutual fund performance white paper by Chen, Hong, Huang and Kubik.) This means funds can get too big to manage.
- Managers must have their money in their funds – Co-Investment – Managers who have $1 million in the funds they manage outperform the majority of their peers over a five-year time frame. (Source: Morningstar Research Inc. and US Securities and Exchange Commission)
Investment Approach Attributes
- Hold Fewer Companies – Fund managers that concentrate their holdings in their best ideas outperform the market by 4% to 10% annually (Source: “Best Ideas” white paper by Randolph Cohen, Christopher Polk and Bernhard Silli).
- Diversify portfolio by idea – not every investment idea works out. Having too much riding on one idea can result in a big loss.
- Managers have to be Active – Fund managers with the highest active share outperformed their index by 3.64% annually. (Source: The Mutual Fund Industry Worldwide white paper by Cremers, Ferreira, Matos, Starks April 2011) This means that funds whose holdings do not overlap the index do better.
- Low Turnover – manager that does not change investments often does well. Industry average holding period is only 1.4 years!
- Fees – Lower MER & TER expenses help the manager outperform.
- Bottom up stock selection based on fundamental analysis is better. Managers should focus on investing and not on market timing or computer algorithms,
WHO do you choose?
- All Mutual funds have someone making the final buy/sell decisions. Therefore there is a “Who” decision.
- Knowing that the decision maker has a good “track record” is important
- A bank or investment company is not the person making the buy/sell decisions.
Which Fund Do I Recommend?
- Edgepoint Global Portfolio, Cymbria (closed end fund) & Mackenzie Global Growth Class are core long term investments and I am moving into other investment options such as REIT’s, private mortgage funds, private equity, as well as some individual companies.