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rob carrick

Heard about the cheapo mutual fund company?

Three of its employees have supplied their owns desks from home. When its people do road shows for investment advisers at hotel conference rooms, they collect up all the pens and pads of paper at the end of the day to use back at the office. The marketing material? Black and white. Flights? Economy.

The company is EdgePoint Wealth Management, a two-year old fund firm that cares about the fees its customers pay and is doing something about it by keeping its operating costs low.

"We believe the industry is plagued by fees that are too high," said Patrick Farmer, chief operating officer at EdgePoint.

As soon as Mr. Farmer made this comment during a recent chat we had here in Ottawa, I knew there was a column in it. Any sign of intelligent life in the mutual fund industry must be encouraged.

Mr. Farmer would say there's a lack of attention to fees because the fund companies of 20 years ago, which were led by investors and focused on investing, have evolved into publicly traded wealth management firms that must answer to shareholders.

"You know as well as I do that shareholders want big profits, big dividends," he said. "How do they get it? High management fees and lots of assets. You launch a product to capture money."

EdgePoint itself is a throwback to the old days of investors running fund firms. Seed money came from Robert Krembil, a widely respected money manager who helped build Trimark into an industry leader that was sold in 2000 to a multinational wealth management firm now known as Invesco. The two EdgePoint co-CEOs, Tye Bousada and Geoff MacDonald, are the firm's key portfolio managers. They're both also former Trimark managers, as is Mr. Farmer.

EdgePoint is independent both in ownership and the way it operates. For example, it offers only four funds, none in the fad-of-the-moment bond category. Mr. Farmer said it's bad for investors when fund companies exploit hot trends with new products. Coming in at the top of the market, these new funds often have nowhere to go but down.

"It's easy to raise money from investors after something has done well, but it's not easy to generate returns," he said. "So we get the average investor continually chasing performance and ultimately ending up with sub-par returns."

Independent Thinking

Another example of independent thinking is the required minimum upfront purchase of $15,000. Some investors and advisers are bound to be frustrated by this, but Mr. Farmer said the resulting savings on record-keeping fees helps drive down the cost of running the fund.

EdgePoint has also declined to offer funds with a deferred sales charge, where you buy in at no cost but face redemption fees if you sell in the six or so years after purchase. DSC funds are particularly expensive for fund companies because of the commissions they have to pay advisers who sell them. Eliminating the DSC option is thus another way of keeping fees down.

By not shying away from fees paid by investors, EdgePoint further highlights its independence from the financial giants that dominate its industry. EdgePoint's fund fact sheets show the same dated fee information as everyone else (the numbers can be as much a year old), but they're unusual in also providing a more recent MER as well in their marketing material.

Truth be told, EdgePoint's fees right now are not notably cheap. But the company is intent on driving them lower and documenting this for customers. The harmonized sales tax introduced at mid-year by some provinces has been a problem, however.

The EdgePoint Global Portfolio had a management expense ratio of 2.17 per cent on June 30. Thanks to the HST, it will come in at an estimated 2.25 per cent for 2010, which reflects half a year of the new tax. A full year of HST could be expected to push fees up even higher, but EdgePoint estimates that it will be able to reduce the MER to 2.23 per cent if its funds keep attracting new money.

Of course, this is relevant only to investors in provinces with a harmonized sales tax. For those without, EdgePoint has created a non-HST series of cheaper funds.

After only two years, it's too soon to assess EdgePoint by its returns. So judge this company by the reputation of its top people, and by a cheapskate business ethic that covers everything from its office furniture down to its no-frills marketing handouts.

"Everything we print is black and white and you know why?" Mr. Farmer said. "Because it costs less than colour, and lower costs mean higher returns."

EdgePoint Profile

Founded: November, 2008

Total assets: $1.5-billion

Fund lineup: EdgePoint Global Portfolio, EdgePoint Global Growth & Income Portfolio, EdgePoint Canadian Portfolio, EdgePoint Global Growth & Income Portfolio

Minimum investment: $15,000

The Approach: "We buy high-quality, undervalued businesses and hold them until the market fully recognizes their potential."

On risk: "We have an old-fashioned view on risk, which is, 'How much money can we lose, and what is the probability of that loss?' "

On currency hedging: Used in foreign bond holdings and may be used in foreign equity holdings.

Sales options: Front load or low load. No DSC option is available.

Returns: Check the fund profiles on

Rob Carrick

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