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.

What do you think?

Along the way, we have experienced Greenspan’s mortgage stimulus and the subsequent crash in U.S. real estate and then in stocks in 2008.

Bernanke and other central bankers’ solution was to add ‘Vodka to the punch bowl’ with QE I & II.  This has resulted in tepid growth, no material improvement in U.S. employment, but has inspired asset inflation and a competitive devaluation environment. You can’t print money on this scale without devaluation and accompanying inflation kicking-in. This is being exacerbated by 2 billion emerging global consumers. Technology is facilitating revolution across North Africa and the Middle East. Food inflation is dangerously out of control. China is banker to the U.S. and they are raising interest rates to quell domestic inflation and speculation. Meanwhile, the U.S. is living in a dream world of artificially low interest rates (0 to .25%) and buying their own paper.
It just doesn’t add up and something has got to give.

Unfortunately, there isn’t a Paul Volcker on the horizon.

Investors are back in the markets, frustrated by low (or no) fixed income interest rates. They are now riding the momentum of the devaluation and inflation inspired bear market rally; remarkably complacent about risk. How quickly they have forgotten the reality of 2008.

The challenge for all of us is to produce reasonable risk adjusted returns from the equity portion of our portfolios, while eliminating the type of currency risk that Robert Lendvai wrote about the other day.

Markets roared back in the second half of 2010 and Porsche dealers the world-over are once again seeing investment bankers lined up outside their doors with fat bonus cheques in hand. Leave it to the British to poke a bit of fun at their bankers and their mishandling of the financial crisis.

While the banter is funny, I can’t help but feeling most of it is also painfully true.

While Vickers’ apocalyptic warning may seem extreme, the extraordinary economic events of the past few years would have also been difficult to fathom just five years ago. Watch it and you might just find yourself stashing all your spare change under the mattress (or investing with us).

This was The Wall Street Journal’s take on Rollover:

At its heart, “Rollover” is high-sheen fearmongering, with diabolical Middle Eastern oil men portrayed as staging “secret financial manipulation” to bring down the U.S. economy. The biggest fear is that the oil-rich states will withdraw their funds from U.S. banks. Remarkably, great stretches of the movie are dominated by talk about Fed policy, interest rates and a “rollover” moment that pitches the world economy into depression.

The final scenes are fake newsreel, which show bank runs, violence and demonstrations, as a newscaster intones: “It began eight days ago, when a group of Arab investors withdrew billions of dollars from U.S. banks. That in turn started a chain reaction on the world’s money markets…as people saw their life savings become worthless in a matter of hours.” (It appears, then, Fonda might approve of the recent investments by the Saudis, Kuwaitis and Chinese into Wall Street.)