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Cash King has his own castle

Larry Sarbit -- he of 80% cash holdings -- launches first fund under his own firm

MUTUAL FUNDS REPORTER

Larry Sarbit, a fund manager with a sometimes controversial investment style, is back in business.

The Sarbit U.S. Equity Trust will invest in "marvellous little businesses under the radar," Mr. Sarbit said in an interview yesterday. It's the first fund to be offered by the newly created Sarbit Asset Management Inc. of Winnipeg.

Mr. Sarbit is best known for his six-year stint as a so-called "deep value" manager at AIC Ltd. of Burlington, Ont. The manager maintained there were few bargains to be had in the U.S. market so he held about 80 per cent cash in his funds. He quit AIC in March this year and declined to discuss his reasons for leaving the fund company.

The AIC strategy gave Mr. Sarbit full exposure to the strong Canadian dollar and investors reaped the rewards. While the bulk of U.S. equity funds have been underwater for the balance of this decade, Mr. Sarbit's AIC American Focused Fund consistently beat the returns of the Standard & Poor's 500 index. Despite the gains, some analysts and advisers were critical of Mr. Sarbit's methods, arguing the fund's high cash position threw a monkey wrench into conventional portfolio construction.

"If having a high mix of cash bugs you, don't invest with Larry Sarbit. Period," said Dan Hallett, a Windsor, Ont.-based fund analyst.

Mr. Sarbit makes no apologies for his investment philosophy.

"If I can't find anything to buy that's going to give me a good rate of return, the best thing to do, the smart thing to do is to do nothing," Mr. Sarbit said. "How are you going to make money if you don't give a damn about price?"

Dan Richards, a fund marketing guru, described Mr. Sarbit's new venture as "a bit of a long shot." He expects initial investors may be made up largely of cult followers of the fund manager, but believes the fund company's long-term success rests on building a track record of strong performance, he said.

"Typically, success takes longer than you would like," Mr. Richards said. "It's a very tough road . . . it's an environment where financial advisers already want to deal with fewer rather than more fund families."

Mr. Sarbit insists he is in business for the long term, and plans to launch further funds when additional managers are brought on board. The Sarbit team currently includes five wholesalers to market the company's story and Harvey Berkal, a former journalist, hired to research potential investments.

"There's room for niche players," Mr. Sarbit said. "All this industry consolidation creates room for niche players that offer something that is not quite what everybody else is doing."

© 2007 The Globe and Mail. All rights reserved.

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