I had the pleasure of meeting Tom Bradley and David Toyne of Steadyhand Funds. They are interesting players in the fund industry in that they use active management but are aiming for lower fees that leave more money in the pockets of investors.
Disclosure: There is nothing to disclose other than that David paid for my lunch. I’m writing this post because I found their answers to my questions interesting. Their web site claims that they are simple and direct and aren’t jerks. I agree.
Steadyhand funds charge lower fees than the typical actively-managed mutual fund in Canada. The equity fund charges at most 1.35%, and the global equity and small cap funds charge at most 1.7%. The “at most” part of those statements are explained in the questions and answers below.
The following are my best recollections of my questions and Tom and David’s answers. Let’s start with my toughest question:
Q: Charles Ellis, author of Winning the Loser’s Game (see review here) says that the investment world today is dominated by skilled professionals with up-to-the-second information and that no one professional can beat the others except by luck. What makes you think that Steadyhand can beat the market?
A: Steadyhand gives managers the best possible chance to beat the market. They are permitted to keep their holdings to 20 or 25 equities and they aren’t saddled with a lot of constraints. We believe that there is enough inefficiency in the market to allow small concentrated funds to beat the averages.
Q: Many large funds have trouble matching the gains they had when they were smaller. What will you do if you are wildly successful and the funds grow to the point where it isn’t feasible to have only 20 to 25 holdings?
A: That would be a nice problem to have. We would have to make decisions about how many holdings to permit, but eventually we would have to close the fund to new investors.
Q: The Steadyhand funds have fee rebates for long-time investors and for larger portfolios (starting at about $100,000). Are the reported returns based on the maximum fees or the actual fees taking into account rebates?
A: Reported returns are based on the maximum fees. So, if you take into account the rebates, some investors get higher returns than the reported returns. The rebates are given to investors in the form of extra units of the fund.
I don’t know if it is possible to beat the market averages these days other than by luck, but if it is possible, Steadyhand is giving their managers a fighting chance. Many mutual funds are closet index funds that are afraid to deviate too much from the index. Steadyhand’s equity funds definitely don’t look like index funds. If they do beat the averages, their investors will be happy, but if they don’t, even their lower than typical fees will look large compared to low-cost index funds.