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Mutual Fund News

No-fuss investor looks for funds on a roll

Eric Fichtner does his own homework and prefers lesser known names, TONY MARTIN writes

The investor

Name: Eric Fichtner.

Age: 50.

Occupation: Electrician.

Investment personality: Cost-efficient mutual fund investor.

Portfolio: McElvaine Investment Trust, Connor Clark & Lunn Balanced Income, Mackenzie Cundill Recovery, Vertex, Front Street Canadian Hedge.

Portfolio size: "Six figures."

Rate of return: N/A.

Now 50, Eric Fichtner has been an electrician all his working life, the last 17 years with Chrysler at its plant in Brampton, Ont.

But while practising his trade has long been second nature, stock trading isn't, which is why he works hard at investing. "It doesn't come naturally so it's not all that fun, and I want to get to the point where it's easier."

How he does it

Mr. Fichtner's natural affinity for low-fee, low maintenance investments stood him in good stead when he started out investing. At the time, Altamira was the new and strange kid on the mutual fund block. The fund company was at the forefront of what then was a radical approach -- letting consumers buy directly from them rather than going through an adviser. They also offered low minimum investments, and low fees.

And, most significantly, no "loads" or commissions. "I read about other funds and you needed somebody in the industry to buy through. You couldn't do it yourself, and you had to pay a fee," recalls Mr. Fichtner. "I thought, 'Why do you need to?' "

With Altamira, he didn't. And the company also offered the expertise of managers like Frank Mersch and Ian Ainsworth. The former was one of the Canadian fund world's first superstars, thanks to the payoff from heavy sectoral bets he made with the Altamira Equity Fund. The fund's performance peaked in 1993. That year, while the TSE 300 -- the index at the time -- was up a healthy 27 per cent, Mr. Mersch steered his fund to a 46.6-per-cent return.

It was a great way to go, says the married father of one, who lives in Waterdown, just north of Burlington, Ont. "Everything was a success. I was making money not doing much of anything."

But Altamira's run -- and Mr. Fichtner's no-fuss financial strategy -- came to an end in the early nineties, with management upheaval at the fund company and markets that no longer gave the fund managers their heady returns.

Equities were falling, in part due to the Russian debt crisis, and so he headed for the sidelines, moving 100 per cent into Altamira's bond fund. That marked a return to profits for him. In 1997, for instance, the fund churned out a 19-per-cent return.

And then along came the dot-com era, with everyone he worked with regularly updating him about how much they had made with Internet stocks in the past 24 hours. The pressure of constantly hearing that refrain wore on him, and he eventually went off to see a financial adviser, assured by the friend who referred him that "This guy had made me a lot of money."

But the way things were presented to him, says Mr. Fichtner, there was no mention of the money the adviser would be making off of him. Mr. Fichtner says he didn't realize what deferred sales charges (DSCs) were -- that while there were no commissions to buy funds, he'd be hit by a sales commission, and often a hefty one -- when he sold.

"The adviser got rid of my Altamira because they don't pay commissions," says Mr. Fichtner, who says the adviser also recommended he not pay down his mortgage so as to have more money in the market. The adviser, he says, then invested him in the usual suspects, including funds that focused on the Internet and the biotech sectors. Then the bubble burst, and Mr. Fichtner was down by a whopping 35 per cent.

The tide turned for Mr. Fichtner when he came across ASL Direct, a discount fund dealer (available only to residents of Ontario and British Columbia) with a twist. Most funds pay advisers a regular quarterly continuing commission -- called a trailer fee -- as long as their clients have money invested with a fund. Trailer fees are not insignificant -- they range anywhere from 0.25 per cent to 1.0 per cent. ASL returns those trailer fees to its clients, and in return charges a flat monthly fee of $29.95 for its service.

Mr. Fichtner signed on. However, it still took him two years and paying out a whack of back-end commissions to get into funds he liked, focusing on funds that were on a roll. "I like momentum plays, sticking with a fund when it's running."

He also prefers smaller, little-known names. Take Vertex Fund, run by Vertex One Capital Management out of Vancouver. While it's a hedge fund, the fund appears to be somewhat more conservative than most. As it says in its description, the Vertex Fund ". . .does not use futures and leveraging is restricted to 15 per cent of total portfolio assets." Over the past five years, the fund has posted an average annual compound return of 19.32 per cent, compared with the 14.54 rung up by the S&P/TSX's total return index, and handily beating the so-called "alternative strategies" category average of 7.93 per cent, according to Globefund.

Mr. Fichtner's close monitoring of the financial press paid off when, unnerved by what he was reading about the future for income trusts, he sold off his units of Acuity Income Trust back in the spring. The fund is down about 13 per cent this year, with most of the damage the fallout from the federal government's reining in of the tax benefits of trusts. "The industry is close-knit, so whenever anybody writes something negative it gets put down quickly, so you need to read between lines," he says. "Just like the Internet craze, income trusts were too good to be true."

Around the same time, he also sold off Disciplined Leadership Canadian Equity, Saxon Stock Fund, and Norrep II, due to the volatility of oil prices and general talk about a market correction. Much of that money was moved into more conservative holdings, chiefly Connor Clark & Lunn Balanced Income fund. "I had made good profit up till then and wanted to protect my equity."

Best move

Like many Canadians, the star so far in Mr. Fichtner's investing life was the Altamira Equity Fund of the late eighties, giving him several years of returns that ranged up to 40 per cent a year. "It gave me a good start."

Worst move

Labour-sponsored funds are Mr. Fichtner's least favourite. "They just went down from the moment I bought them." He's got rid of all his labour funds, despite having to pay commissions, as well as repay the tax credits the funds earned him. "It was just too annoying to look at them every month."

Advice

"You have to figure it out for yourself. Nobody's going to take care of you like you."

Tony Martin is the co-author of the book Investing For Canadians For Dummies, published by CDG. Interested in being profiled in Me and My Money?

tony.martin1@sympatico.ca

© 2007 The Globe and Mail. All rights reserved.

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