Targeting 2% of the market is unheard of, but that’s what EdgePoint Investment Group, which celebrates its first fund’s third birthday in November, does. We interviewed founders Tye Bousada and Geoff MacDonald to learn why.

WHAT (SOME) ADVISORS WANT

Although EdgePoint launched in January 2008, the first fund opened nine months later — during the depths of the market sell-off.

From January to November, EdgePoint travelled the country, finding out what advisors liked and disliked about the mutual fund industry. What they heard was an aversion to marketing. Advisors felt they were being sold the latest flavour of the month, and bloated marketing budgets simply inflated MERs.

They decided to target the 2% of advisors who “define success as good investment performance over the long term, and not asset growth,” says Bousada. “[Our target advisors say,] ‘What matters is low MERs, which help deliver good performance over the long term. So you can keep your sleeve of golf balls with your company’s name on it.’ ” EdgePoint also keeps MERs low with a relatively high minimum investment of $15,000 per portfolio.

Despite its small target audience, EdgePoint stands out. “It’s a crowded market if you look like everybody else,” says MacDonald. “Not many look like us.”

That’s evident in the Spartan approach to marketing: the firm does not advertise; marketing material is in black and white; there’s no artwork on display in the lobby or boardroom; and the trading desk is an innocuous table tucked between offices.

TIMING OF LAUNCH

The timing of the 2008 launch was a mixed blessing. It was a spectacular time to put new money into the stock market. Finding that money was the challenge.

“When we went out in November, we said, now is a great time to invest. If the world doesn’t end, there’s a lot of money to be made,” says Bousada.

Forget slick marketing packages and roadshows; the company feels strong long-term performance will drive sales. This made launching into a down-market imperative, despite the risks. A marketing-led company, the pair contend, would have postponed the launch of the funds until investor appetite had returned.It would be easy to suggest the annualized 24% return since inception is a result of that timing, but the Canadian mandate has easily outstripped both its peer group and its benchmark, the S&P/TSX Total Return Index.

But Bousada says the company doesn’t want to be judged on such a short period. “We want to have performance that’s at the top of our peer group over a ten-year time frame,” he says. “We’re not quite a third of the way through our first ten-year target goal of being near or at the top of our peer group.”

ETFS NOT THREATENING

Bousada says ETFs sold through advisors are not a lot cheaper than lower MER mutual funds, once trading costs and fees are factored in. Comparing funds bought through an advisor to ETFs traded by a DIY investor is not accurate.

“I’m not sure how many people out there are good enough to make money trading those ETFs,” MacDonald says. “ETFs are generally marked at fair value. We try to buy things that are undervalued.”

While the percentage of active managers who beat the index fluctuates month to month, Bousada points out passive investors always underperform their respective index, net of fees.

“We like to take advantage of the volatility some of these ETFs might be creating as they blindly buy or sell,” he says. “We’ll be on the other side of those trades capitalizing on it.”

Steven Lamb is Group News Editor of Advisor.ca, Benefitscanada.com and Canadian Insurance


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