The Investment Partners Fund

Does your fund manager have real skin in the game?

Back in the 1920’s, the first mutual fund was created. By 1929, there were approximately 19 open-ended mutual funds available in the US. Fastforward to 2011. A quick search through the Globe and Mail’s GlobeFund’s database of all non-index mutual funds in Canada, yields over 13,000 mutual funds.For comparison purposes, there are slightly more than 2,000 stocks listed on the Toronto Stock Exchange.

Something has been lost in the proliferation of the mutual fund industry. Many of the advantages of its simple structure, professional management, diversification, and economies of scale, have been overshadowed by a failure of investors to achieve the results they expected and paid for. The median compound annual average rate of return of the Global Equity category in the GlobeFund database for the 10 year period ending December 31, 2010 is -1.3%. The median management expense ratio (MER) for this same group of funds is 2.88%.

Investors have good reason to be frustrated and cynical. Many of the most “successful” funds in Canada, which in industry terms means the largest funds, are characterized by having a large number of holdings that look very similar to broad market indexes. These traditional funds are managed by portfolio managers that also manage other funds and may or may not own units of the fund they are managing. We think successful should mean the “best performing” for a given level of risk and not necessarily “the largest”.

As sad as this sounds, the benefits of very large mutual fund size “do not” accrue to the investor as much as they do to the mutual fund company and the investment advisors that sell and promote them.

Unlike most mutual funds, the portfolio managers of Investment Partners Fund have 100% of their investable net worth alongside other fund unitholders. They committed to this in writing as part of the IP Fund’s statement of investment policy which is on file at the Ontario Securities Commission.

Before you invest in any fund, ask your investment advisor or better still the fund manager – “how much skin do you have in the game?” If you don’t like the answer, look elsewhere.

Trading on Twitter

I’m a huge fan of Twitter and social media in general. Not only is it fun and hugely entertaining, but it also has the potential to to make us money in more ways then we can imagine. Check out these videos from CNBC on how traders and fund managers are looking to exploit Twitter for profit.

The Long and Short on Investing

William Ackman of Pershing Square Capital Management and Professor Michael Porter of Harvard Business School talk to CNBC about the tensions that exist in capital markets. Is there a natural conflict between short and long-term investing? The duo discuss whether financial markets are in fact serving the needs of the economy, as opposed to just creating investment vehicles.

What do you think?