It's one of Canada's best-run mutual fund companies -- and one of the most difficult in which to invest.
A princely $25,000 is required to open an account at Phillips Hager & North Investment Management Ltd. The Vancouver company does no advertising; the bulk of clients learn of the firm via word of mouth. The company pays no broker fees so most investors opt to buy direct. In the bull market '90s, the firm turned away new institutional clients.
The hurdles are intentional, said Tom Bradley, president and chief executive officer. Wooing new business, advertising and third-party sales -- the bread-and-butter practices of the bulk of the mutual fund sector -- would boost PHN's operating costs. And higher expenses would mean passing on higher management fees to unit holders.
"It's really to keep our costs down," Mr. Bradley said. "We are constantly watching the balance between costs and accessibility."
The company's near-religious conviction in the world according to GARP -- "growth at a reasonable price" -- wins praise from the investment community. And when coupled with above-average returns, especially for the firm's Canadian dividend and bond funds, you've got what many consider to be the country's best mutual fund manager.
"Their big appeal is that they are a sizable company, been around a long time and their fees are dirt cheap. They pay nothing to brokers and dealers, which is one of the reasons that their fees are as low as they are," said Dan Hallett, president of Dan Hallett & Associates Inc. in Windsor, Ont.
Take PHN's Canadian dividend income fund, the firm's largest and best-known fund. The blue-chip $2.2-billion fund has a 1.18-per-cent annual management expense ratio, the total of all fees charged against a fund expressed as a percentage of assets. In comparison, the average Canadian dividend fund has an MER of 2.53 per cent, about 114 per cent higher than PHN. And unlike the bulk of the competition, PHN has no charges or fees to invest or leave a fund. The firm manages $46-billion in assets for 500 institutions and about 70,000 small investors.
PHN's low-fee ethos is a byproduct of its entrepreneurial spirit. The private company has 58 shareholders, all of whom are retired or current employees. Mr. Bradley describes the firm as a hybrid, part partnership, part corporation, where all managers are accountable because they "have some skin in the game."
Leon Tuey, a Vancouver financial analyst, has followed PHN's growth since the 1970s.
"You have some very, very solid people there," he said. "They are honest, they are very conservative, they don't even advertise. They stick to what they know best and keep plowing ahead."
PHN takes a sombre buy and hold approach, shunning new, exotic high-yield -- and typically high MER -- products. Structured funds, industry niche funds and index-linked funds are noticeably absent from the company's slate of 22 funds.
"We haven't found anything better than the good old, boring-as-hell pool fund or mutual fund -- if it's done right. Keep the MER under control and the management fee reasonable," Mr. Bradley said.
PHN manages a $112-million equity fund for Ottawa's Tradex Management Inc. The fund has been a top performer for the past 10 years.
"One of the things that I personally like is they don't take a short-term view so they're not chasing quartile performance, they're pursuing long-term growth," Tradex president Robert White said.
Mr. Bradley jokes that PHN's strong management team allows him to keep his feet up on his desk looking out on Vancouver's Burrard Inlet.
"There is some truth to that . . . the business isn't that complicated," he said. "If we really deliver and do our best job as an investment manager and we're feeling good about ourselves, we want our clients to feel good."
© 2007 The Globe and Mail. All rights reserved.
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