Energy, resource and income trust mutual funds had a stellar 2005, but nobody held a candle to the Friedberg Diversified Fund.
The little-known commodity futures fund was up a staggering 303 per cent in value last year. The nearest competitor, the DeltaOne Energy RSP Fund, was up a measly 120 per cent.
Success hinges on a mix of experience, research, leverage and diversification, said David Rothberg of Friedberg Mercantile Group Ltd.
"Our success comes from . . . the creative and scrupulous way we comb through information that's publicly available. We associate the bits and the pieces and then carefully execute trades," Mr. Rothberg said. Like many long-serving key members of the Friedberg team, Mr. Rothberg has no formal title. He jokingly refers to himself as king; Albert Friedberg, the company founder and major shareholder, is emperor.
The Toronto company has humble roots. In 1971, Mr. Friedberg ran the business from a suite at the King Edward Hotel. His chief tools were a black rotary dial phone and a small library of commodity statistics. The firm's first clients were an eclectic mix of aspiring film producers and hotel merchants.
The 1970s were a heady decade for commodities, with oil and gold enjoying tremendous runs. Mr. Friedberg's business did, well, very, very well and his client roster -- and personal fortune -- grew. Today, the investment firm calls BCE Place home and manages close to $500-million in a mix of funds, a large chunk of which belongs to the Friedberg family.
"The clients, I think, get a pretty good deal. . . . Their money is parked basically right beside the manager's," Mr. Rothberg said.
That said, he is the first to admit the commodity game is a volatile, high-risk proposition with a long list of major global investors chasing short-term returns. Despite an incredible 2005, the tiny $2.4-million (U.S.) Friedberg Diversified Fund made a stale 1-per-cent return a year earlier. In 2003, it was down 37 per cent in value; in 2002, it was up 32 per cent. The fund has averaged an annual return of 8.5 per cent since its inception in 1996.
Two smart trades were behind last year's performance. Early last year, the Friedberg team thought the oil market was out of sync. What they did was sell short near-term oil futures, while at the same time, snapping up longer-term oil futures. In trader's lingo, the move is called "fading the oil roll." Returns were made on the shrinking discount between the two prices.
Then in June, gold looked promising. The fund bought gold while at the same time it shorted the euro. Gold ended 2005 up 21 per cent in value, while the euro slipped 13 per cent against the U.S. dollar.
"It's very easy to burn your fingers," Mr. Rothberg said. "But we've been around the block. We know what we're doing."
The Friedberg Diversified Fund is closed to new investors. The Friedberg Global Macro Hedge Fund Ltd., a $186.4-million (Canadian) mixed strategy hedge fund, has an estimated 10-per-cent exposure to the diversified fund and remains open to new retail accounts. The hedge fund, launched in May last year, returned 13.4 per cent in 2005.
No worries over Nikkei
Don't fret over the Japanese market meltdown last week. Odds are you had limited exposure.
Canada's 27 mutual funds with a weighting of 50 per cent or greater in Japan have a total of $1.4-billion in assets under management, a tiny fraction of Canada's $570-billion mutual fund market.
News that Internet firm Livedoor Co. may have hidden losses saw the benchmark Nikkei 225 index slip 4.6 per cent in value last week. In 2005, the index was up a whopping 40 per cent in value. Here in Canada, Japanese equity funds recorded an average gain of 24 per cent last year.
There goes another one
And then there were 178.
Odyssey Capital Corp., a 10-year-old independent fund dealer, was sold last week to Investment Planning Counsel Inc. of Mississauga. The St. Catharines, Ont.-based firm manages about $170-million in assets. Terms of the agreement were not disclosed. Subject to regulatory approval, the transaction is expected to close on Jan. 31.
It's the latest transaction in a rapidly consolidating industry. According to the Mutual Fund Dealers Association of Canada, there were 249 fund dealers in 2002; today, the number has shrunk to 178.
Two factors are at work. Sewing up distribution channels is key for large fund firms. IPC itself was swallowed in 2004 by Power Corp. of Canada 's IGM Financial Inc. Meanwhile, there's increasing financial pressure on small, independent firms.
"It's a more challenging environment we are working in," said Douglas Lane, Odyssey president. "The margins are very thin, costs are rising, compliance is very, very heavy. This allows us to be part of a bigger organization and focus on our own clients."