Client focused firm working to make clients better investors
After having worked in the investment industry since 1994, I have developed a healthy sense of skepticism and cynicism which prevents me from getting too impressed when a fund company celebrates an anniversary or reaches a milestone. That said I have to admit that seeing Vancouver based Steadyhand celebrate their fifth birthday recently does make me happy to see it.
In hindsight, the company which was co-founded by the former CEO of Phillips, Hager & North Ltd. Tom Bradley, could not have been launched at a more inopportune time. Global equity markets were in the midst of a massive bull run that started in 2002, and some concern over its health were beginning to emerge. Little did we know at the time that those concerns would result in such massive selloffs in the global equity markets, which saw most developed markets drop more than 40% between late 2007 and early 2009.
Since then we have lived through the U.S. subprime mortgage fiasco, the global credit crisis, the collapse of the U.S. housing market, a global recession and more recently the European debt crisis. Yet through all of this, Steadyhand has managed to grow to more than $175 million in assets under management in its five core funds. “Are we as big as we thought we’d be at year five with $175 million and 1200 clients?” asks Mr. Bradley rhetorically. “The answer is no. But client satisfaction, first quartile performance, momentum and inflows tell us that while this has taken us longer than we thought, it is coming. It’s been a ridiculous time to build a business from scratch, but it’s been a great time to prove who we are and what we do,” said Mr. Bradley.
According to Mr. Bradley, “The markets and market sentiment were on a roller coaster. But if you transpose Steadyhand on that, I have to tell you, we have been just a picture of calmness and stability, which is what our name implies. During the 2008 and 2009 period, we kept people invested and got them buying. When things turned around and they got euphoric, we cooled them off, urging them to rebalance. You have this ridiculous up and down in the market, yet we’ve lived up to our name and have been pretty calm.”
Apart from not having as many client assets as they would like, another disappointment for the firm has been with their investment performance during 2008. “I thought our philosophy would stand up better than it did. But when we look at our five year numbers, our balanced clients are solidly first quartile,” said Mr. Bradley.
There have also been many positives along the way including the performance of the funds. As of April 30, all the funds have finished in the first quartile, outpacing the vast majority of their respective peer groups. The lone exception to this is the firm’s global equity offering, which has been one of the sore spots for investors.
The Funds
|
Returns |
Quartiles |
||||||||||
|
YTD |
1 Yr |
2 Yr |
3 Yr |
5 Yr |
YTD |
1 Yr |
2 Yr |
3 Yr |
5 Yr |
||
| Steadyhand Savings |
0.3% |
1.0% |
0.9% |
0.6% |
1.5% |
1 |
1 |
1 |
1 |
1 |
|
| Steadyhand Income |
2.9% |
7.6% |
8.5% |
13.3% |
6.6% |
1 |
1 |
1 |
1 |
1 |
|
| Steadyhand Equity |
4.9% |
-1.5% |
6.3% |
9.5% |
0.2% |
3 |
1 |
1 |
2 |
1 |
|
| Steadyhand Small Cap Equity |
8.8% |
13.6% |
18.1% |
19.9% |
6.2% |
2 |
1 |
1 |
1 |
1 |
|
| Steadyhand Global Equity |
4.0% |
-5.8% |
-1.9% |
4.6% |
-6.2% |
4 |
3 |
4 |
4 |
4 |
|
Source: Fundata
The Steadyhand Global Equity Fund (SIF 140) is managed by Edinburgh Partners using a go anywhere mandate. It, like the other Steadyhand funds is a concentrated portfolio, holding approximately 40 stocks. Despite the underperformance, the firm is sticking with them. “Their long term track record is still great” says Mr. Bradley. “They are a firm that is not afraid to follow their valuation nose and act on their convictions which is a theme that is not only found in our hiring of managers, but with our ongoing relationships with them. We are very patient. Our meetings aren’t to beat them up over RIM or Manulife or Nokia. It’s to probe and understand the process around that. There might be some on my team who are mad that I don’t beat the managers up more, but when a manager is down, that’s when you need to support them. They don’t need to be beaten up more. They’ve already been beaten up. But we do want to understand why those mistakes happen.”
One of our favourites in their lineup has been the Steadyhand Income Fund (SIF 120) which is as close as they have to a bond fund. Mr. Bradley calls this his “bond beater” which is what it is designed to do over the long term, with a target weighting of 75% bonds and 25% income focused equities such as REITs, high yielding common shares, and preferred shares. There will obviously be periods of time where this doesn’t happen, with 2008 being a prime example. That year, the fund dropped by nearly 9%, yet the DEX rose by 6.4%. This can be attributed to the fund’s high weightings in corporate bonds and its equity exposure.
While this positioning has hurt the fund compared to the DEX Universe in the past, we expect that it will be an asset going forward. In speaking with many bond managers of late, given the lack of solid growth in the global economy, they don’t expect interest rates move sharply higher in the near term. Many have stated that they believe a reasonable expected return for bonds would be the coupon rate of the bond, less any fees. Many are forecasting that equities will perform better than fixed income over the medium term. If that base case does come to fruition, this fund, with its larger exposure to higher yielding corporate bonds and 25% equity exposure should outperform a traditional bond fund over the medium to long term. Factor in a low MER and you have a winner.
Another one of our favourites is the Steadyhand Small Cap Equity Fund (SIF 150) which is managed by Wil Wutherich who is based in Montreal. According to Mr. Bradley, Mr. Wutherich “is a unique cat. He is very disciplined. He doesn’t care about the index at all. He is just looking for what he calls ‘diamonds in the ditch’ which are companies that have a history of earnings and cash flow and in the small cap sense are a little bit more mature.”
Because of this emphasis on earnings and cash flow, the fund is underweight in resources, particularly materials, which will result in it lagging the markets when resources are hot. 2009 is a prime example when the BMO Canadian Small Cap Index rose by nearly 70% while the Steadyhand Small Cap Fund was up by only 15%. Another byproduct of the focus on more mature companies is that the fund’s volatility will likely be lower than many other funds in the category.
The Steadyhand Equity Fund (SIF 130) is a Canadian focused equity fund managed by Toronto based CGOV Asset Management. Mr. Bradley describes the fund as “a clean, tight, high conviction portfolio.“ It is Canada centric, but CGOV can invest up to 49% of the fund outside of our borders. “The basic premise is that I want great Canada exposure, but I didn’t want to limit them,” says Mr. Bradley. He goes on, “I just didn’t want to have a manager have to be bound by this distorted, funny, illiquid market we have here with the three big sectors,” of course referring to materials, energy and financials. In describing the fund Mr. Bradley says, “It’s a neat little fund. It has some of the perfunctory Canadian stocks. It’s got TD Bank, Suncor Energy, Crescent Point Energy, but it also has Compass Minerals International, Asia Pacific Brewery and Novartis.” Companies that you wouldn’t normally expect to see in a Canadian focused equity fund.
Performance has been above its peer group except for 2009 where it lagged the index. Mr. Bradley also points to 2010 “where high quality companies with no need for financing or bank renewals weren’t doing so well, but it’s really served them well the past couple of years.”
There is also the Steadyhand Savings Fund (SIF 110) which is the firm’s money market offering. It’s a great place to hold cash if you want to keep it within your Steadyhand account as “dry powder”. The reality is that you can do better elsewhere if you’re looking for just a money market or high interest savings account.
The company recently added a fund of fund solution aptly named the Steadyhand Founders Fund (SIF 125), which is managed by the firm’s co-founder Tom Bradley. Until now the company resisted offering a balanced fund because they “wanted to build every portfolio to be very customized based on the client,” said Mr. Bradley. He goes on, “the reality is that a lot of client portfolios are 60/40 or 50/50 or something similar.” Another trend the company noticed when reviewing client accounts was that only a small portion of the client base was actually managing their portfolios by doing such things as basic rebalancing. The Founders Fund will help address these issues as Mr. Bradley will actively manage the asset mix of the fund looking to take advantage of trends as they develop, and take care of the day to day portfolio management duties such as rebalancing. It made its debut in February and has already attracted $15 million in assets. Mr. Bradley doesn’t think it unreasonable to see this fund continue to grow to become one-third to even half of its total assets as many clients “have busy lives and aren’t as engaged and trust us to do the things for them.”
Looking Ahead
Steadyhand has made admirable progress in the past five years, particularly in the face of the market environment and global economic uncertainty. When asked about what the future holds for the firm, Mr. Bradley said, “We definitely need to grow further. We have a real business here, but we need to get to $250 million or more.” To help get there, the company is investing heavily in technology that will allow them to realize that growth without increasing costs to investors.
They will also keep doing “more of the same.” They will continue to invest client funds using the philosophy of “undexing” and not “putting handcuffs” on their portfolio managers. By creating high conviction, concentrated portfolios, the investment talent has a chance to outpace the indices. Says Mr. Bradley “If I want index returns, I’ll buy an ETF.”
Director of Business Development David Toynes summed it up nicely with, “We wake up every day with a real sense of purpose to change the landscape and to re-tilt the tables in favour of the investor.” The company has vowed to continue to focus on doing what’s right for the investor by offering low fees, unbiased advice and open, honest and transparent communication with investors.
Bottom Line
Operationally and philosophically, Steadyhand is well aligned with its investors. From an investment standpoint, they offer a concentrated lineup of funds from which an investor can build a strong portfolio. Their strengths are the Steadyhand Income Fund and the Steadyhand Small Cap Fund, with the Global Equity Fund being the biggest weakness in the lineup. For do it yourself investors who are looking for actively managed mutual funds and a company that will provide some investment guidance along the way, Steadyhand is a great place to start. For those looking to be more hands on and create a broader portfolio, we would suggest they focus on the firm’s Income and Small Cap Equity offerings and rounding out your global and Canadian equity exposure elsewhere.