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Little Hartford brings an 'A' game

Star managers help turn a lacklustre firm into a top grower, KEITH DAMSELL writes

MUTUAL FUNDS REPORTER

Chances are, most investors have never heard of Hartford Investments Canada Corp., the country's fastest-growing fund company in 2006.

As of Dec. 31, assets under management had climbed to $672.9-million -- up a stunning 72 per cent from $391.1-million in 2005.

Industry analysts are quick to note that Hartford is a small firm and, as a result, growth is more pronounced. Nevertheless, it's a significant achievement for a U.S.-based financial-services giant that struggled to gain traction with investors and advisers when it launched Canadian fund operations in 2000. Initially, the firm was largely micromanaged from its Connecticut head office, and by 2004 assets under management were a slender $150-million.

Two years ago, fund industry veteran Laurie Davis was hired to run Canadian operations, and she made two key strategic decisions.

First, Hartford's employee head count was boosted to 23 from 10, including a team of 10 wholesalers that is key to building relationships with financial advisers. The larger sales force has helped Hartford to diversify its client base. In the past, U.S. partner Edward Jones & Co. LP accounted for 90 per cent of Canadian sales; that market share has fallen to about 60 per cent.

More importantly, Ms. Davis forged partnerships with some crack fund managers, including well-regarded institutional managers keen on building a larger presence in the retail market.

"I think if you are a focused mutual fund company, there's a place for you. And if you are going to grow your assets, you need very good managers to do that," Ms. Davis said.

Here's an overview of Hartford's investment team, a group that manages seven of the firm's 11 Canadian mutual funds.

Black Creek Investment Management Inc.: Hartford made headlines last summer when star fund manager Bill Kanko, president of Black Creek, joined forces with the firm. Mr. Kanko's skills as a global equity manager were key to the success of Trimark Financial Corp. through the 1990s.

Mr. Kanko took over the reins of the lacklustre Hartford Global Leaders Fund in June and liquidated the entire portfolio. He has figured prominently in Hartford's marketing campaign, and assets under management have spiked sharply to $72-million today from about $18-million six months ago. In the next few weeks, Hartford will launch a global balanced fund, and Mr. Kanko has been tapped to run the international equity portion.

Unlike some of his rivals, the fund manager does not rely on computer spreadsheets or strict investing tenets. His stock-picking skills hinge on long hours of research. "It's really trying to understand the economics of different businesses . . . and develop a view that is different from what other investors are saying," Mr. Kanko said. "It's a long-term view of the world and looking out to see what a company's earning power may be in five years or more."

Results to date have been respectable. Hartford Global Leaders returned 14.3 per cent for the six months ended Dec. 31, just shy of the global equity group average of 14.7 per cent. Last year's top performers in the go-anywhere fund include financial giant American Express Co. and software firm Oracle Corp.

Mr. Kanko is in a cautious mood going forward. The mixed outlook for North America's equity markets has meant a flood of new money into global securities, and bargains are hard to find.

"The risk is that inflation is higher than people think . . . the risk is rates will be higher than people think.

"That's a risk to equities. So it's not a table-pounding time to be buying equities," he said.

Beutel Goodman & Co. Ltd.: The Toronto institutional money manager has ties to a handful of retail fund companies. About 90 per cent of its $15-billion in assets under management are managed on behalf of institutional investors.

The value-driven investment shop oversees about $50-million in two Hartford funds, the capital-growth focused Hartford Canadian Value Fund and the yield-driven Hartford Canadian Equity Income Fund.

"Our view of the value world is focused on the best businesses . . . those companies capable of generating free cash flow," said John Shuter, vice-president and partner at Beutel. "They will have the highest barriers to entry, they will have the ability to price products, they have product differentiation, they have excellent management."

A number of Beutel holdings were strong performers in 2006, including Husky Energy Inc., Quebecor Inc., Shell Canada Ltd. and Trizec Canada Inc. The two Hartford funds were launched together in September, 2004, and as of Dec. 31 they each had returned about 16 per cent since inception.

Canada's heady four-year bull market has Beutel preaching the merits of diversification in defensive equities. Capital preservation is crucial.

The two Hartford funds are underweight in energy and materials and overweight in financials, especially blue-chip insurance providers and consumer-driven companies, including Molson Coors Brewing Co.

Greystone Managed Investments Inc.: The Regina-based firm is a little-known significant player in Canadian money management, running about $29-billion for institutional clients.

Greystone's four Hartford funds are the only means for a retail audience to access the firm's team of 30 investment managers. The Hartford Advisers Fund, Hartford Canadian Stock Fund and Hartford Growth and Income Fund have been managed by Greystone since 2004, and each has earned a coveted four-star rating from the Globefund.com investment website. The Hartford U.S. Growth and Income Fund was launched last June and has returned 18.6 per cent since inception.

Greystone is a bottoms-up, growth-focused manager. Earnings drive investment-making decisions, including a firm's year-over-year earnings growth, its ability to meet analysts' earnings expectations, and lastly, whether it sticks with earnings estimates.

Like Beutel and Black Creek, Greystone has a cautious outlook for 2007 and expects earnings growth to slow. The firm recommends investors revise their expectations and rebalance their portfolios as needed.

"We continue to like equities vis-à-vis fixed income, but . . . we are very aware that we are many years into the cycle and that expectations have actually gotten more aggressive by investors and analysts as we've gotten through the cycle," said Donald MacKay, senior vice-president and leader of the Canadian equity team.

kdamsell@globeandmail.com

Hartford's fast growth

$672.9-million

Assets under management

at Hartford Investments Canada

as of Dec. 31, 2006

$391.1-million

Assets under management at Hartford Investments in 2005

KEITH DAMSELL

© 2007 The Globe and Mail. All rights reserved.

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