IT IS SAID THAT mutual funds are sold, not bought. If you believe that, then Francis Chou should have failed a long time ago. As Rob Carrick discovered when he was researching our cover story this issue, it's a minor miracle, really, that anyone has ever heard of Chou.
Chou Associates Management has exactly two employees: Chou and his secretary. He spends no money on marketing--zero--and he only speaks to brokers once every couple years--when invited. The trailer fees that he pays to brokers are also well below industry averages. Yet there he is, an independent fund manager running more than $1 billion in an industry dominated by bigger and bigger players--with bigger and bigger sales forces. How has Chou succeeded?
The first explanation is easy: strong long-term results. His Chou Associates Fund has a 15-year annualized return of 13%, good enough for Globefund to rank it 17th of all mutual funds in Canada over that time. Chou also attributes his success to word of mouth, the odd positive media story and the Internet--investors can now find him easily, instead of relying on their broker to sell them a fund. Maybe funds aren't always sold, after all.
Another story in this issue also fits into the theme of the little guy against the goliaths of the industry. In "The Steadyhand diaries," page 22, Tom Bradley, former CEO of Phillips, Hager & North and a Saturday columnist for the Report on Business, gives us his blow-by-blow account of what it takes to start a new fund company. Bradley's firm, Steadyhand, is different from Chou's in one major way: Bradley isn't running the money; he is using external managers. But Steadyhand is similar in that it, too, doesn't have a sales force--other than Bradley.
The two fund companies have other things in common: They both offer low fees (no in-house sales force to pay) and they both want to offer funds that look nothing like an index. Chou delves into stocks no one else will touch, while Steadyhand's managers concentrate their investments on a select number of stocks. The two fund companies are playing into broader trends in the Canadian investment marketplace: the demand from investors for lower fees and for funds that can do better than the index or ETFs. Both stories should make investors stop and think about what they want from their mutual funds.
© 2007 The Globe and Mail. All rights reserved.
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