Scary news on the mutual fund front: Gerry Coleman is 65.
Don't be too alarmed, The Globe and Mail's money manager of the decade isn't retiring just yet from the fund business. "I still love it," Mr. Coleman says. "I like a challenge, I'm a very competitive guy and I like to win."
That's the problem. Mr. Coleman's a winner in an industry that tolerates losers quite well. The average Canadian focused equity fund lagged well behind the benchmark S&P/TSX composite over the 10 years to Nov. 30. CI Harbour, the fund run by Mr. Coleman since mid-1997, beat the index cold while exposing investors to less risk.
A simple, if somewhat controversial, strategy accounts for a lot of this success. When stock markets soar, as they have since March, Mr. Coleman sells some of his winning stocks and keeps the money in cash. When stock markets plunge, as they did last winter, that cash acts both as a cushion and a bankroll for buying cheap stocks.
Some people think equity fund managers are paid to buy stocks, and that holding cash is fence-sitting that generates no value for clients. Mr. Coleman's characteristically blunt response is that he simply doesn't buy stocks when they're out of bargain range.
"If that's what you want, our fund's not for you," he says. "There are other managers out there. All kinds of them."
We know, we know. In choosing the money manager of the decade, we looked at the 960 or so funds with a 10-year record. After eliminating the wacky up-and-down sector and specialty funds from the list of top performers, what remained was a small group of Canadian equity and Canadian focused equity funds. No global or U.S. funds made the list because returns in this category are unspeakably bad for the most part.
In the end, Mr. Coleman was our choice for money manager of the decade because his results represent the best of what the mutual fund industry has to offer investors in terms of balancing risk and returns.
CI Harbour's compound 10-year average annual return to Nov. 30 was 9.3 per cent, which was fourth in the Canadian equity focused category. What separated it from the competition was its record of protecting investors from the worst of a bear market. In 2008, while the average peer fund lost 30.1 per cent and the S&P/TSX composite fell 33 per cent, CI Harbour dropped 24.5 per cent. In 2002, when the index fell 14 per cent, the fund was off 0.9 per cent.
Strong risk-adjusted returns are the reason why CI Harbour is a fixture on analyst mutual fund recommended lists. "It's easily one of my top picks," said Dave Paterson, an independent analyst who provides research to investment advisers. "It's been on my list since the beginning."
CI Harbour also appears on the exclusive Analyst Picks list at the independent analysis firm Morningstar Canada, on a list of best third-party funds chosen by analysts at RBC Dominion Securities, and on the ScotiaMcLeod recommended list.
Mr. Coleman typically holds about 40 stocks at a time, typically big, "best-of-breed" companies purchased at cheap prices. "I'm very fussy on the price that I pay," he said. "That's probably borne out by the fact that our cash positions are larger than almost all of our peers, all the time."
In March, with the bear market at its worst, Mr. Coleman let his pile of cash dwindle down to 8 per cent of the fund. Today, with the stock markets up dramatically from their 2009 nadir, he's back around 25 per cent.
His boss, CI Financial CEO Bill Holland, says that one of the things that distinguishes Mr. Coleman from the crowd is how he has stuck to his approach over the years.
"I remember in 2000, nobody would buy his mutual fund because he wouldn't buy Nortel, JDS and all of those things that were driving the TSX," Mr. Holland said. "He just said, that's fine, I'll underperform forever, but I won't buy stocks that I think are foolish. And he beat the market by 50 per cent in the next 12 months."
Mr. Coleman's disciplined approach and consistency have impressed Calgary investment adviser Kevin Cork enough to put about 40 per cent of his clients in CI Harbour.
Over the 20 years that he has followed Mr. Coleman, Mr. Cork said he has twice seen him make presentations in Calgary. 'He's very plain spoken, he doesn't seem to get too excited and he doesn't care what the fads are."
It was a coup for CI back in 1997 when it lured Mr. Coleman from Mackenzie Financial, where he was one of the managers of the popular Ivy Canadian Fund. He started out in the fund business in 1978 with United Fund Management and prior to that worked as a trader and investment manager for Montreal Trust.
His team over at CI includes Stephen Jenkins, an associate for the past 15 years, plus four analysts. "Over time, they all kind of look and sound like Gerry," Mr. Holland said. "But he's pretty hard on them. If they don't make it, he has no problem saying, try doing something else with your life."
These days, Mr. Coleman is finding the most attractively priced stocks outside the Canadian market. Top holdings of late include BHP Billiton, the Australian mining conglomerate, as well as Suncor Energy, a couple of banks and Canadian National Railway.
Too tame? Too bad. That's how the money manager of the decade does business. "If you want steady Eddie stuff year after year and to get rich gradually, you should pay attention to us," he says.
THE GERRY COLEMAN FILE
Birthplace / Halifax
Age / 65
First financial job / Managing personal accounts in the investment department of Montreal Trust
Start in the fund biz / In 1978 with United Fund Management
Also worked for/ Mackenzie Financial, where he managed the Ivy Canadian Fund
Current job / Moved over to CI in 1997 to take over a new fund called CI Harbour
Also manages / CI Growth & Income
Influences / Warren Buffett and John Templeton
Thoughts on losing money / "I hate losing money. I'd rather miss an opportunity than lose money."
Thoughts on his investing time horizon / "Stuff I'm looking at today might be stuff that doesn't look that attractive right now or in the next six months, but it looks really appealing to me over the next four to five years."
Thoughts on his trading style / "Even though I don't do a lot of trading day to day, when I think it's time to get going I'm very aggressive. I'll get into the market and elbow people out of the way."
© 2007 The Globe and Mail. All rights reserved.
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