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Funds in for the really long haul

A handful of funds date back as far as 70 years. And, writes ROB CARRICK, a long life and decent returns often go hand in hand

When you run the same mutual fund for more than 50 straight years, you learn to relax and enjoy a bear market.

"I love it when the market comes down," says George Frazer, who has managed the Co-operators Canadian Conservative Focused Equity Fund since 1950, when it was created as Associate Investors Ltd. "However far down it goes, we'll be looking for buys at that stage of the game."

Mr. Frazer and his fellow managers seem to have this drill down cold. Last year, while the average Canadian equity fund lost 12 per cent, the $23.9-million Co-operators fund made 4.1 per cent. From inception through the end of 2002, it delivered a highly respectable compound average annual return of 9.8 per cent.

The cliché would be that most fund managers were in short pants when Mr. Frazer started working on Co-operators Canadian Conservative's predecessor. But that doesn't capture the utter uniqueness of a manager running a fund for more than five decades.

First, there aren't more than a tiny handful of mutual funds in Canada that have even been around for multiple decades. A couple of funds date back to 1932 and about nine or so, including the Co-operators fund, have been around for 40 to 50 years or more.

To put this in perspective, just 478, or 15.3 per cent, of the 3,112 mutual funds tracked by even have a 10-year record. For that matter, only a little more than one-third have been around five years.

Second, most of the long-lived funds have been shunted from owner to owner so much that there's really no connection to the original entity.

An example is the $95.5-million StrategicNova Commonwealth World Balanced Fund, which began life in April, 1932, as the Viking Commonwealth Fund and is one of the oldest funds in Canada.

The most remarkable thing about Co-operators Canadian Conservative Focused is not so much the longevity of the fund as the continuity of its managers.

Yes, managers. In addition to Mr. Frazer, 76, there's Bill Tynkaluk, 73, who came aboard in 1956. A third manager, Patrick Magee, 36, came aboard in late 2000.

Mr. Tynkaluk says that their years of experience are, of course, helpful in guiding the fund. But a decidedly conservative investing style has really been the key.

"The biggest thing is that we keep out of trouble," Mr. Tynkaluk says. "We don't buy stocks that have a huge debt position. We don't buy stocks with no earnings. And if it doesn't pay a dividend, a company has to have prospects of paying one."

The fund also keeps a disciplined approach in terms of the stocks and sectors it holds. No more than 20 per cent goes in any one industry and no more than 5 or 6 per cent is in any one stock.

"Following our criteria, we missed the speculative surge in the oils back in the 1980s," Mr. Tynkaluk recalls.

"We missed the big boom in real estate and we basically missed the high-tech revolution, although we made a fair amount of money in the first stages of it.

"By sticking to fundamental stocks for the majority of our portfolio, it worked out great for our clients."

If you look at other mature mutual funds -- say, at least 35 years old -- you'll see that a long life and decent returns often go together. Clearly, there's an argument for long-term investing here.

The Templeton Growth Fund, the largest fund in the country by assets at $6.9-billion, has an excellent compound average annual return of 13.6 per cent from its November, 1954, beginning. And the $700.5-million CI Canadian Investment Fund has made an average 8.6 per cent a year since it opened in November, 1932, as Canadian Investment Fund Ltd.

Not all grizzled funds have great numbers, though. The $235.2-million Investors U.S. Large Cap Growth, dating back to January, 1968, has a compound average annual return of 6.5 per cent. On the other hand, the $2.3-billion Investors U.S. Large Cap Value Fund has made 9.1 per cent a year since it began in January, 1962.

The StrategicNova Commonwealth World Balanced Fund has made an average annual 9.1 per cent since inception, which is not bad at all. But you can't put much stock in this number because of the fund's changes in ownership over the years.

After decades as Viking Commonwealth, the fund became known in 1993 as the Laurentian Commonwealth Fund. Four years later, it became StrategicNova Value Commonwealth Fund and, three years after that, StrategicNova Commonwealth World Balanced Fund.

StrategicNova Inc. was bought last summer by the parent company of the Dynamic mutual fund family, which has its own mature fund, Dynamic Value Fund of Canada. This $117.4-million fund, which dates back to July, 1957, has a 20-year average annual return of 8.6 per cent, about a percentage point below the Canadian equity category average.

Given how green the fund business is in Canada as a whole, you might expect that companies would be eager to play up the fact that they offer a fund that has successfully spanned the decades.

It doesn't work out that way. "There's only so much marketing you can get out of that," says Karyn Byrne, manager of public relations for Dynamic. "I don't know if I'd hang my hat on it."

More important, says Ms. Byrne, are consistent returns.

Murray Oxby, manager of corporate communications for CI Funds, says that marketing for CI Canadian Investment puts the spotlight on the current manager, Kim Shannon, who has been managing this fund (and predecessor Spectrum Canadian Investment) since 1996.

"Our emphasis is to market the manager, her record and her investment style, which is value," Mr. Oxby said.

Associate Investors, the precedecessor to Co-operators Canadian Conservative, was created by money-management firm Leon Frazer & Associates as a way for the offspring of the firm's clients to invest. These young people didn't have sufficient assets to use the private-client money-management services offered by Leon Frazer, but the firm still wanted to keep them in the family.

The firm was created by George Frazer's father on the day in 1939 when the Second World War began. After serving in the army during the war -- as an 18-year-old he was kept in Canada -- George Frazer studied commerce and finance at the University of Toronto and then worked for Chartered Trust.

He joined the family firm and after that has never looked back. "It's a fun business," Mr. Frazer says. "If you can help people the way we think we help them, there's nothing like it."

It turns out that the continuity at Co-operators Canadian applies not only to its managers but to its clientele as well.

"One of our private clients today had shares in 1956," Mr. Frazer recalls. "Back then, he was putting $5 per week into the fund." This client's fund units were worth about $1.25 apiece when he started. Today, they're valued at $15 or so. Someone who invested $10,000 in the fund at the end of 1950 would have had $1.3-million at Dec. 31, 2002.

Co-operators Canadian is also somewhat unusual in that it remained a tiny, independent entity right up until 2000, when it was picked up by the fund arm of The Co-operators, the Guelph, Ont.-based insurance company.

The decision to sell to Co-operators was made in part because the fund's unitholders were aging. The feeling was that many of these people would be cashing out their holdings as they retired, and that the fund's asset base could plunge without a stepped-up marketing effort to bring in new customers, Mr. Frazer says.

Since Co-operators took control, the fund's asset base has climbed to $24-million from $15-million. All the while, Mr. Frazer and Mr. Tynkaluk have retained their influence over the way the fund does business, even though they no longer own it.

"As part of our negotiations with Co-operators, we told them that we as managers would not countenance more than a 2.4 per cent MER [management expense ratio]," Mr. Frazer says. "They've stuck to that."

This level of MER is significant for a couple of reasons, one being that it's about 0.30 of a percentage point below the average for Canadian equity funds. More importantly, it's low enough that it is more than offset by the dividend yield on the fund's stocks, which is about 4.2 per cent.

Looking ahead, Mr. Frazer sees continued success for his fund in 2003 even though not necessarily for the stock markets. His forecast is for a lacklustre period where the major indexes end up no more than 5 per cent on the up or down side.

"Let's put it this way, Mr. Frazer says. "I hope it's on the down side so that I can get the bargains."

© 2007 The Globe and Mail. All rights reserved.

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