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Company or product? Just roll the dice

Returns on fund companies don't always mirror their marquee funds, KEITH DAMSELL writes

Buy the fund or the fund company?

A quick look at the returns of Canada's largest publicly traded fund companies and their marquee equity funds shows decidedly mixed results.

Investors in AGF Management Ltd. would have done better over the past five years had they bought the company's leading blue-chip fund, the AGF Canadian Large Cap Dividend Fund. Shares have suffered over the period as mutual fund assets under management have fallen to $21.6-billion from $29.9-billion in 2001.

"It all depends on the time frame you take," said Blake Goldring, AGF's president and chief executive officer. Over the past 10 years, the company's share price has soared more than 450 per cent in value.

It's a toss-up between CI Fund Management Inc. and the company's biggest domestic equity fund. The Toronto firm is the sector's fastest-growing player, while fund manager Kim Shannon's CI Canadian Investment Fund has a long track record of double-digit returns.

And finally, IGM Financial Inc.'s share price performance easily trumps the returns of the mammoth $9.3-billion Investors Dividend Fund. The Winnipeg company is a shrewd operator but some funds have a mediocre track record.

The perfect investment play, sadly, has come and gone. Snapping up a fund stock about 20 years ago and unloading it in 2000 would have meant substantial gains, said Bill Holland, CI's president and chief executive officer.

"Just stumbling in to the industry in the mid-eighties, when it was taking off, it would have been better to invest in a mutual fund stock than anything else," he said.

Resolute proposes fee hikeResolute Funds Ltd. wants to crank the management fee for its stellar fund by a whopping 25 per cent and is blaming the hike on increased regulatory costs.

On June 20, the Toronto fund company will ask unitholders to approve the right to raise the annual management fee of the Resolute Growth Fund to 2.5 per cent from 2 per cent.

"The manager has become increasingly concerned of late about additional costs of the various regulatory initiatives recently enacted or proposed," said Resolute's May 20 management information circular.

Indeed, a mountain of paperwork is headed to a mutual fund near you. First off the mark next month is National Instrument 81-106, a continuous disclosure policy that will require fund companies to distribute financial statements and performance reviews for individual funds.

"It's a huge implementation nightmare," said Toronto lawyer Rebecca Cowdery, the former head of the investment funds team at the Ontario Securities Commission.

Fund companies across the country are debating who will pay the freight -- the investor or the company.

It's a particularly prickly subject, especially in an environment of soft returns and increasing pressure to lower fees.

Resolute is the first to stick its neck out and ask investors to pay up. Some expect unitholders will shrug off the increase, given the fund's enviable track record. The $298-million small-cap fund, which is closed to new investors, is an outstanding performer, reporting an annual five-year return of 33 per cent.

Nevertheless, several industry sources scoffed at the proposed 50-basis-point hike, arguing that only a fraction of this figure is needed to cover regulatory costs. Tom Stanley, Resolute president and fund manager, did not return telephone calls.

Court reviews Lee-Chin split

The estranged wife of mutual fund billionaire Michael Lee-Chin wants $725-million, or roughly a 50-per-cent share of his company, AIC Ltd., The Hamilton Spectator reported earlier this month.

Vera Lee-Chin, who married the Jamaican-born businessman in 1974, has an application in Hamilton's family court to set aside their 1997 separation agreement. She wants it quashed on grounds that Mr. Lee-Chin concealed he was worth $255-million at the time they signed the contract, the Ontario newspaper reported.

Mr. Lee-Chin's legal team claims Ms. Lee-Chin's "constructive trust claim" is without merit and should be dismissed, the newspaper said.

The family court file was sealed by a judge's order in 1996 when the couple signed their separation agreement. Superior Court Justice Donald Gordon allowed Spectator reporter Barbara Brown to attend a May 18 court hearing.

AIC declined to comment.

McGovern defends hedge funds

It's a tough time to be a hedge fund executive.

The well-publicized woes of Norshield Asset Management Ltd. and Portus Alternative Asset Management Inc. have investors running for cover.

To make matters worse, performance has suffered because of choppy markets.

Sitting on the front lines is Jim McGovern, chairman of the Canadian chapter of the Alternative Investment Management Association. He's working hard to put the best spin on a grim picture and clarify some myths about the alternative asset management class:

Hedge funds are inherently risky. No -- they simply incorporate a wider range of risks when compared to a typical mutual fund, Mr. McGovern said.

Hedge fund companies are always going out of business. Yes, the sector's attrition rate may be high when compared to some financial services but it's marketing, rather than investment performance, that's usually to blame, he said.

Hedge funds are a panacea. Diversity in your portfolio is a key to success. Like all asset classes, hedge funds have good and lean years and should never replace traditional investing fundamentals, Mr. McGovern said.

Hedge funds are expensive. "Relative to what?" is Mr. McGovern's response. Too many investors confuse profit and risk management when weighing the cost of hedge funds. When compared to mutual fund fees, hedge fund investors are "paying a fair price," he said.

© 2007 The Globe and Mail. All rights reserved.

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