How Canoe plans to compete with the fund giants

In an Aug. 19 release announcing the launch of two new mutual funds — including a global equity fund managed by veteran deep-value manager Tim McElvaine — Canoe proclaimed itself to be one of the fastest growing mutual-fund companies in Canada.

However, rapid growth in percentage terms is much easier to achieve if you’re small to begin with. Since the launch of its first mutual funds in February 2011, Canoe has grown to about $650 million in asset under management in open-end funds. To put Canoe’s current mutual-fund assets in context, if they were all held in one fund the RBC family alone would have 32 funds larger in size.

Giving itself somewhat more heft, Calgary-based Canoe also manages the $1.2-billion EnerVest Diversified Income Trust EIT.UN , which was formed in 1997. This closed-end fund has been managed since November 2010 by Canoe, which is an indirect parent of the original manager.

Conventional wisdom says the days of small entrepreneurial fund companies are over. Today’s mutual fund industry is dominated by the big banks, branch plants of foreign-owned multinationals and a handful of large Canadian-owned independents.

Established firms with deep pockets, economies of scale and well-known brand names, it is said, are best able to meet investors’ diverse needs and afford the costs of investment management, administration and marketing, and regulatory requirements.

Markwart naturally disagrees. In a recent interview, he outlined how privately held Canoe intends to compete with the industry giants. Canoe’s key strategies include: exclusive alliances with external money managers, broadening its product offering, expanding its internal money-management capability, and providing a more personal touch than its much larger competitors.

Canoe’s newest investment ally is the Victoria-based McElvaine, president of McElvaine Investment Management Ltd. He’s the manager of the newly launched Canoe Global Value Class Fund, an all-cap, “go-anywhere” global equity fund.

A protégé and long-time colleague of the late Peter Cundill, a famed global value manager, McElvaine has been a manager of the former Cundill family of mutual funds and subsequently for Mackenzie Financial Corp. after it acquired the Cundill funds.

McElvaine managed Mackenzie Cundill Security Fund during 1992-1999, was co-manager of the Cundill flagship Mackenzie Cundill Value Fund between 1998 and 2003, and more recently was sub-advisor to the former Mackenzie Universal Canadian Value Class Fund during 2009-2012.

McElvaine founded McElvaine Investment Management Ltd. In 1996, and since that time has managed McElvaine Investment Trust, which invest primarily in small- and mid-cap Canadian stocks and is sold via offering memorandum. Canoe Global Value Class fund represents McElvaine’s re-entry into retail mutual funds, and in that space he’ll be an exclusive “superstar-quality guy” for Canoe, says Markwart.

In seeking to produce above-average performance, McElvaine will have to overcome an above-average fee hurdle. The management fee for the optional-load Series A is 2.5%, among the highest in the global equity category, and on top of that an administration fee of 0.35% is charged to cover operating expenses.

The other new fund launched this month is Canoe Global Income Fund, the firm’s latest mandate to be sub-advised by units of the Netherlands-based Aegon organization. The portfolio of the new global fixed-income fund will be managed by Aegon USA Investment Management, LLC. Canoe has an exclusive retail-fund relationship with Aegon, which also manages five other mandates in fixed-income and balanced categories. The management fee is 1.85% for Series A, which is again above average. Management-expense ratios are generally a competitive disadvantage for Canoe.

Both new mandates are global in nature, signaling a continued broadening of Canoe’s product offerings from its original Canada-centric focus. Markwart acknowledges that there will obviously be periods of time, as there have been recently, when the Canadian markets will lag.

Canoe’s previously trumpeted “Go Canada” theme has been de-emphasized, as evidenced by the Canoe’s prospectus renewal this month. The latest prospectus, dated Aug. 13, deletes “GO CANADA!” from the names of the 11 funds that previously included this slogan. In part, though, the renaming was done because the fund names were thought to be too long; “Go Canada” remains in the name of the overall corporate-class structure.

To bolster its internal money-management capabilities, Canoe has hired Robert Taylor, formerly of BMO Asset Management Inc., as a senior vice-president and portfolio manager. Effective July 29, Taylor replaced Bob Haber, the head of Boston-based Haber Trilix Advisors LP, as the manager of the closed-end EnerVest Diversified Income Trust and four open-end funds: Canoe Canadian Monthly Income Class Fund, Canoe Canadian Asset Allocation Class Fund, Canoe Canadian Equity Class Fund and Canoe Capital Appreciation Class Fund.

Markwart, who worked under Haber as a manager of Canadian equities at Fidelity Investments in Boston, said Haber wanted to step down and asked that Canoe find a replacement for him. “Bob is a great friend and mentor of mine,” says Markwart. “That doesn’t change one iota.”

In Taylor, Canoe gains a manager who over the years took on greater responsibilities at a large bank-owned firm, and was receptive to moving to a smaller firm with a more entrepreneurial culture. At his former employer, Taylor served as a portfolio manager of funds that included BMO Asset Allocation Fund, BMO Equity Fund and BMO Resource Fund. He was also a member of BMO Asset Management’s asset-mix committee. Taylor joins Canoe portfolio manager Rafi Tahmazian, who specializes in resources mandates.

Canoe has hired an analyst to work with Taylor, and Markwart says that he and Taylor communicate daily. Markwart, 48, who holds an MBA from Northeastern University in Boston and is a CFA charterholder, embarked on an investment career after his NHL playing days, mostly with the Boston Bruins, which ended in 1992.

Before joining Canoe, Markwart was with Boston-based Fidelity Investments and his responsibilities included working with the Canadian operation. He was head of Canadian equities and a member of the executive team at Fidelity Investments Canada. His previous employers include Wellington Management Co. and Standish Ayer and Wood Inc., both based in Boston.

Markwart speaks passionately about the need to communicate effectively with investors, through their advisors. He asserts that a small employee-owned firm like Canoe is better suited and motivated to be client-centric than the huge companies with which it competes.