Gold Is Getting A Lot Of Mention In Canada This Weekend.
TV - (You know, that other medium )had a few shows this weekend with analysts giving their " best shot " at the Markets.Sentiment appeared bearish overall to moi.Mucho talk on Gold.More up-beat than not.That's a change,eh?
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A mining and commodities analyst( can't find the name right now - not on site ) was fairly bearish on the commods in general due to recessionary-slow growth pressures on the Global Eco.Hard to argue that one.At the end he was asked about Gold,as an aside I guess.<g>
" Buy Gold "....he said......" if you are a speculator "....and had a twinkle is his eye and " interesting " grin showing.
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Placer Dome interviewed.TO's .Their price is up and the juniors have lagged.Still likes Indonesia.......if you can appreciate that.South America still on the list.
Showed small I oz bars that folks can buy and said " Gold is no one's liability ",
" you can exchange it for the value set on it "," it is money ".
This was the the President of PDG.
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From last weekend's G & M.Gold is mentioned.. 10 - X
Was surprised they pointed so profoundly at " Old Yeller " .
Thanks For The TS Article Alex.
Taurus
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Troubled times at Trimark
BAY STREET BLUES
This has been the mutual fund giant's toughest year since its
inception about 20 years ago. Industry watchers and investors are
wondering when -- or if -- the company can regain its Midas touch.
Saturday, September 26, 1998
SHIRLEY WON and PAUL WALDIE
The Globe and Mail
Toronto -- For what seems like forever, mutual fund giant Trimark Financial Corp. has wooed investors with the slogan "We Manage. To Outperform."
But that clever twist of phrase has taken an ironic turn, as Trimark's stock plummets, investors bail out of its flagship funds, and industry watchers speculate when or if Trimark can regain its Midas touch.
"Clearly, they have run into a tough sell in terms of performance," said Dan Richards, president of consulting firm Marketing Solutions. "There are many clients who are saying -- in response to some of the media coverage about their underperformance -- 'get me out of there.' "
Some of Trimark's funds, particularly its three giant Canadian stock funds, have lost their shine in the past three years, turning in below-average performance and prompting a flow of money out of these funds.
The rush of unitholders for the exits, which began earlier this year when the markets were still strong, knocked the company from its perch as Canada's second-largest player last spring to No. 3 in the industry behind Royal Bank of Canada and Investors Group Inc., sitting at the top of the heap.
Some former Trimark boosters who used to regularly endorse the Trimark Canadian stock funds have soured on these investments, critical of what they see as an ill-fated change in investment philosophy.
That concern was heightened last year by a controversial jump into the gold market, a puzzling move for a company that sells itself on its record of investing in solid, growth companies for the long term.
Not surprisingly, Trimark's stock price has been pummelled. It closed yesterday at $16.25, a 61-per-cent drop from its record $42 high last September, and scything $2.4-billion off the company's market capitalization. That's made Trimark a cheaper takeover target, although industry watchers say the whack of good will on Trimark's books will make it a tough pill to swallow. (Good will is the difference between the price of an acquisition and the value assigned to the asset purchased.)
This has been Trimark's toughest year since its inception nearly two decades ago. Until now it has enjoyed spectacular growth -- particularly during the fund-mad 1990s. Many of Trimark's peers have gone through tough times when their marquee funds' performance has lagged. Altamira Investment Management Inc., a star fund outfit in the early 1990s, is still struggling.
While Trimark executives say they are concerned by investors abandoning some of their funds, they're confident things are beginning to turn around.
While not noticeable yet to many investors, they say the Canadian equity funds have started to improve relative to their peers since August.
"We believe we will be vindicated," Trimark president Arthur Labatt vowed in an interview at the firm's Bay Street headquarters.
Stock funds were a tough sell in a year when Canada Savings Bonds offered a no-risk, no-brainer return of 19 per cent.
Trimark was founded that year by Mr. Labatt, a scion of the brewery family, and two partners -- Bob Krembil, now chairman and head of the investment team, and Michael Axford, who retired in 1986.
The trio left their jobs at investment manager Bolton Tremblay Inc. in Toronto to pursue the dream of setting up their own firm. With $800,000 in seed money, they launched two equity funds with 33 initial investors. "They were mainly my relatives," Mr. Labatt said.
By 1991, Trimark's assets had ballooned to $2-billion. Sales were growing so fast that Trimark was having trouble lining up capital to cover up-front commissions to brokers and dealers on the popular back-end load funds.
To fund those liabilities, the company went public in April, 1992. Profit mushroomed to $80.8-million in fiscal 1998 from $1.7-million in 1992, the stock soared and the firm's executives prospered. In 1996, Mr. Labatt and Mr. Krembil sold $75-million worth of Trimark shares. (Both still own 30 per cent of Trimark together and they were each paid nearly $1-million last year in salary and bonuses).
Chief operating officer Brad Badeau also received nearly $20-million last year in salary, bonus and through the exercise of stock options. Mr. Badeau said most of the money was plowed back into Trimark funds.
Falling star
Until recently, Trimark's growth was driven by the consistent "outstanding performance" of its flagship funds, a strong administration system to deal with financial advisers, and innovative marketing, said Mr. Richards of Marketing Solutions. "The [education] material they provide to clients has been some of the best in the industry," he said.
But loyalty built up among brokers and dealers who sell the funds began to wane over the past year over concerns about the departure of key managers and the deteriorating short-term performance of Trimark's flagship funds.
Long-time Trimark managers such as Bill Kanko, who co-managed Trimark's international funds, and Dennis Starrit and Dina DeGeer, who ran the Trimark Canadian equity funds, left in 1994-95. They now run funds for rival fund giant Mackenzie Financial Corp., which had its own problems with redemptions from 1990 to early 1993.
Ironically, Trimark's success may be the cause of some of its problems. The size of Trimark's three giant Canadian stock funds may be affecting performance, some industry watchers say, making them less nimble and more likely to be confined to buying big companies. Until recently, the funds were being managed like one gigantic fund.
Lead manager Vito Maida -- uncomfortable with the high valuations in the market in recent years -- began building up a huge cash position. That hurt the flagship funds' performance prior to August, when the Toronto Stock Exchange 300 total return index tumbled 20.1 per cent.
Mr. Maida also got out of the high-flying bank stocks too early and started accumulating a big position in depressed resource stocks, a one-two punch that hurt the funds.
But the event that really raised eyebrows among Trimark watchers was a significant bet on gold in the summer of 1997. The move shocked many supporters who saw it as a sharp deviation from Trimark's philosophy of "buying good businesses." The company said the gold, which made up almost 5 per cent of each of its Canadian stock funds, was seen as an alternative to cash.
By the beginning of this year, some brokerage firms, such as Nesbitt Burns Inc., RBC Dominion Securities Inc. and Merrill Lynch Canada Inc. (formerly Midland Walwyn Inc.), had dropped the Trimark Canadian equity funds off their recommended list of top funds.
Miles Santo, who owns a mutual fund dealer in Schomberg, Ont., said he first advised his clients to sell out all their Trimark Canadian stock and balanced funds last November. "The final straw was the addition of gold," he said.
The redemptions amounted to nearly $12-million of about $23-million that his clients held then in all Trimark funds. Mr. Santo said it was not an impulsive decision because he had been recommending the Trimark fund family since 1981.
Michael Nairne, president of Toronto-based Equion Group, a financial planning firm, said he, too, has become concerned lately about size, style inconsistency and fund management turnover in the Trimark Canadian stock funds.
"A gold certificate is not cash," Mr. Nairne said. "I don't buy that."
But Mr. Krembil denies there has been any change in style and that size is a problem. Trimark's objective is to have its funds' 10-year performance record in the top 25 per cent of its peers and that can mean times when the managers "stand apart from the crowd," Mr. Krembil said.
Although the Canadian stock funds sold their controversial gold position this past summer, he defends the move. "Nobody accused [Warren] Buffett of style inconsistency and he invested in silver," Mr. Krembil said. "If our performance had been top quartile, then it wouldn't have been an issue."
The Canadian funds didn't lose money on the investment, even though the price of gold declined. It was "pretty much a wash" because the gold was bought in U.S. dollars and the Canadian dollar had depreciated relative to the greenback, he said.
However, Mr. Krembil admits he does not not plan to allow the funds to invest in gold bullion again. "The investment logic was right, but the angst that it created for our investors and with our planners and brokers wasn't worth it."
Seeking a solution
Trimark has been busy trying to rebuild confidence in its funds. In an unusual move, the company recently sent out a letter to unitholders to explain its investment strategy and said criticism of its gold position was a "red herring."
Net redemptions represent around 7 per cent of the $29-billion in assets since the beginning of the year, Mr. Krembil elaborated in an interview this week. "It's significant, but it's not serious to the functioning of our business."
Still, industry watchers say one big problem facing Trimark is that it simply lacks a diversity of investment styles to enable dealers to switch their clients from one Canadian equity fund if one is underperforming.
That's unlike rival fund giant Mackenzie, which sells Canadian equity funds using four different investment styles. If a Canadian stock fund in Mackenzie's Industrial family of funds is faring poorly, clients can switch to other Canadian equity funds in its Ivy, Universal or Cundill families for no fee. That means assets stay with Mackenzie instead of flowing to a rival company.
Trimark says it doesn't plan to emulate the Mackenzie model. "Different [investment] styles don't make sense to us," Mr. Krembil said. "We have a brand called Trimark, and we want that brand to indicate superiority and long-term performance."
But Trimark has its own solution that it began nearly a month ago. It plans to put "different investment teams" on its Canadian stock funds, but they will all still follow the same investment philosophy.
Until recently, Mr. Maida ran the Trimark Canadian Equity, Trimark RSP Equity, and Trimark Select Canadian Growth Fund and the company's balanced funds.
But Trimark managers Keith Graham and Geoff MacDonald -- hired last spring from the Ontario Teachers Pension Plan Board -- now run Trimark RSP Equity. Other teams will be appointed to run the other Canadian funds. "It introduces a bit of competition," Mr. Krembil acknowledged.
But it's not clear whether this new direction will be enough. "It's a good move, but it's coming awfully late in the day," said Gordon Pape, a popular author of mutual fund guide books. "I don't know if these guys are going to be any better. I haven't any idea."
Mr. Pape downgraded his rating on the Trimark Canadian stock funds to below average from last year's above-average rating in his 1999 Buyer's Guide To Mutual Funds.
Mr. Santo is also skeptical. "They haven't really differentiated the funds enough in the eyes of the representatives who sell the products," he argued.
"I am willing to use the products again but I have to see them prove that they know how to perform again. Give me some numbers."
Mr. Krembil, meanwhile, said the turnaround in the Trimark Canadian stock funds is under way. He expects their one-year performance numbers could end up in the second quartile by the end of the month and net redemptions could be down "significantly" in September from the $385-million in August.
James Dancy, an analyst at Lévesque Beaubien Geoffrion Inc., estimates Trimark's net redemption problem could continue for three to eight months, "which would pull them out of the red by next summer."
That's conditional on the performance of the Canadian funds improving and "I think they are doing that," Mr. Dancy said. "If we go through a global recession, then I expect they will be in redemption for two to three years.
"Not only will they remain in it, but other companies will follow them into it. It would not be something particular to Trimark."
But Trimark has a strong brand name that will hold them in good stead in a prolonged market downturn, he said. "The money tends to shift or stay with the better-recognized and better-capitalized companies."
Against the backdrop of Trimark's woes, there has been increasing speculation the company may be bought up. One rumour circulating this past summer was that U.S. fund giant Franklin Resources Inc., which owns Templeton Management Ltd. in Canada, had its eye on Trimark.
But Trimark executives denied it's been approached by Franklin or others. They also deny they are looking to buy fund companies, although they don't rule out the possibility as smaller players struggle to survive in a bear market.
Despite redemption woes, Trimark is still on a sound financial footing with $216.6-million in cash by the end of June. Any acquisition "would have to . . . fit with us very well," Mr. Labatt said.
Still, industry watchers suggest that if a buyer emerges for Trimark, it would more likely to be a foreign player because the banks have got their hands full with potential mergers.
And Mr. Labatt said it would have to be a friendly takeover, referring to the fact that insiders hold a substantial stake in the company. Fund company AIC Ltd. also owns a 20-per-cent interest in Trimark through AIC's mutual funds.
But Mr. Labatt and Mr. Krembil say they are not looking to cash out. "We can see the light at the end of tunnel," Mr. Labatt said. "We haven't changed our style and it's all going to pay off." |
