Vanessa is off today. She’ll be back next week.
You guys must think that I’ve officially gone off the deep end. Yesterday I tell you about a mutual fund manager who hammers the market on a regular basis, and today I talk about investing in mutual funds. But you’ve always assumed mutual funds are bad. That’s what the couch potato guy told you, and you all listen to him like he’s some sort of person to be worshipped, like that all powerful ape on the planet of said animals.
(I’ve met the couch potato guy. He’s nice. I approve of the worship.)
And yet, I think there’s still a place for you to invest in mutual funds. Oh, put the pitchforks away. I don’t mean calling up the nice lady at the bank and giving her your meagre life savings to invest in Bank X Canadian Equity Fund. That’s just plain dumb, because of the fees and whatnot. Instead, I want you to invest in the fund companies themselves, but especially one in particular.
Here’s the deal. There are a lot of dumb investors out there. People constantly chase stocks that are making new highs. They buy junior gold miners and strange tech companies with little in assets and nonexistent earnings. Some go out and blindly buy “what they know,” even though investing in Starbucks and drinking Starbucks are two completely different things. And there are even people who buy stocks solely based on tips they read on Twitter. One of those people writes about money. I’ll let you guess who it is.
And most of those people invest in mutual funds, even though ETFs are a far better idea.
Look, we can push financial literacy until the cows come home, but that doesn’t mean people are obligated to understand it. People have crap to do, like 3 solid hours of TV and making sure their kids don’t starve. They know a financially savvy person or two, and they just save their financial questions until the finance friend comes around. We all do the same thing with mechanics and doctors, among others.
So when they’re at the bank and the nice financial planner type person tells them to invest in funds, they do it. The banks do a nice job of creating the impression that the employee in charge of that stuff is just another buddy who is into finance. The planner will help you out, says the marketing. And we believe it.
But you can’t just blindly pick a mutual fund company and buy it. There are a half dozen publicly traded mutual fund companies in Canada who are competing for assets under management. And for the most part, they’re all pretty much the same. Each company has a fund in each asset class, that makes about the same return and charges the same fee. How do they differentiate themselves?
Traditionally, it’s meant a sales force and an expense account, and maybe a strip club or two. When your product is virtually the same as a competitor’s, you either use goodwill to convince advisors to sell it, or you do it the old fashioned way, by paying them more.
But there’s one mutual fund flogger that stands apart from the rest, for one simple reason.
It has its own salesmen.
The company I’m referring to is Investors Group, a company that spectacularly didn’t hire me back in about 2004. Jerks. It has an army of nearly 1,000 financial advisors that are constantly pushing its expensive mutual funds that generally underperform the market. Some of Canada’s biggest funds are either Investors Group or Mackenzie Financial branded, which are all under a company called IGM Financial (TSX:IGM).
If you’ve ever seen the company’s marketing, it’s all about how professional and competent these advisors are. They wear a suit, and usually have a pretty swanky office. All a customer needs to do is show up and give them all their money, and retirement will be days of sunny skies and pants hiked up to your armpits.
If you compare that to Canada’s two largest mutual fund companies — AGF Financial and CI Financial, there’s a huge difference. Both these companies have to worry about first convincing advisors to suggest the funds in the first place, over the others. Sure, some independent financial planning type people exist, but for the most part the industry is dominated by big financials. Each bank branch has wealth management people, and even insurance companies are setting up little offices that handle both insurance and funds. You can bet those companies are going to offer funds with the company’s name on them first.
It’s even easier for customers to understand. Imagine knowing nothing about finance, going into your local Bank of Montreal, and having the person sell you a fund that’s called AGF Whatever. You’d think it was weird, at a minimum.
Those other mutual fund companies? I wouldn’t touch em. But Investors Group? I bought some a while ago, and I continue to hold it. It has a distinct competitive advantage of constantly pushing its own products, which will help out the stock over time. I wouldn’t buy at these levels, but at anything under about $40 it’s an interesting stock.