A fresh take on financial advice

“I always wanted to be an educator and help people with their investments, and there is a great need for independent advice,” says Hodson, 48, who lives in Kitchener with his wife and four children. “One of my options would have been to become a teacher, and now I can teach without having to become a professor at a college.”

The five Is in “5i” are integrity, independence, insights, individuals and investments. Hodson provides investment opinions on stocks, closed-end funds and mutual funds using friendly, everyday language. He also rates companies using a report-card style of grading, ranking them from A+ to F-. The cost of a subscription to 5i, which includes access to the 5i blog and weekly emails, is $86 a year.

Normally, brokerage firms are reluctant to slap stocks with a “sell” label for fear of jeopardizing their underwriting business. Instead, negative opinions are often couched in vague terms such as “hold,” Hodson says, adding that it’s hard to find unbiased ratings: “I don’t listen to economic theory. Most of my success has been in picking good companies — and a good company is still good even in a bad economy.”

Hodson says some good companies fly under the radar because they don’t frequently come to the Street to raise capital, and these financially strong firms are some of the best investments.

“I look for the companies with good management and growth prospects, and point out the lousy ones that the [financial services] industry is quiet about,” he says. “On Bay Street, they won’t mention that a firm’s previous share issue was at $20 when this one is at $10. Age helps — I remember the previous issue.”

During almost six years at Sprott, Hodson was lead manager of Sprott Growth Fund. That fund, which merged with Sprott Small-Cap Equity Fund prior to Hodson’s departure last summer, differed from many funds in Sprott’s stable by taking a purely bottom-up approach to stock selection with less emphasis on big-picture trends. Sprott’s analysts tend to form opinions on macroeconomic trends, so its portfolios are heavily weighted to reflect these big ideas. For example, Sprott mutual funds have been heavily weighted in precious metals in anticipation of a currency crisis. “I’m an eternal optimist,” Hodson says, “and Sprott was perhaps not the best fit for me.”

Hodson’s time at Sprott, however, had helped him achieve financial independence, so he does not have to rely on his new ventures for an income. His shares in Sprott became liquid when that firm went public in 2008.

Sprott’s initial public offering was the second time Hodson’s ship had come in. Several years previously, he had been a fund portfolio manager with and a shareholder of Synergy Asset Management Inc. Hodson made a handsome profit when Synergy was bought by Toronto-based CI Financial Corp. in 2003.

Although Hodson had spent many years as a money manager, he had worked as a writer between 1989 and 1992, producing the investment publication Money Reporter for MPL Communications Inc. of Toronto. At the same time, Hodson was working on his CFA. Armed with those credentials, he then headed toward more lucrative occupations, becoming a credit analyst and managing director with Dominion Bond Rating Service Ltd. (now DBRS Ltd.). In 1994, Hodson moved to Mutual Asset Management in Waterloo, Ont., for which he was an analyst and then took over the management of a small-cap growth fund. He later managed mutual funds for Synergy, CI and Waterfall Investments Inc. of Toronto before joining Sprott in 2006.

Hodson had bought his first stock, shares in Ottawa-based software firm Mitel Networks Corp., at age 11 using the proceeds of his paper route in Ottawa. Those shares more than doubled in price in 18 months, and Hodson thought he could make money a lot faster in the stock market than by delivering papers. However, he lost his profits rapidly on his next investment, Vulcan Packaging Inc., which had appealed to his boyish imagination with a technology it was developing to prevent gas tanks from exploding. Trying to understand the financial world led Hodson to obtain an economics degree at the University of Western Ontario.

Next, Hodson took on a series of clerical and administrative jobs in the investment industry before becoming a registered representative at discount broker Marathon Brokerage. After that, he worked on the Money Reporter and obtained his CFA, which launched him as an analyst and fund portfolio manager.

As a fund portfolio manager, Hodson felt pressured by the perception of conflict of interest if he was asked by the media to comment on stocks that might be held in either his fund or other funds within the fund family. At 5i, Hodson avoids commenting on the few stocks that he holds and there is no association, he says, with any brokerage or money-management firm. (Hodson is investigating the idea of turning over his personal portfolio to a third party.) In addition, he won’t accept incentives such as stock options or other perks that are sometimes offered to financial newsletter writers to tout stocks.

Hodson says many investors pay hefty fees, of which they are unaware — particularly for structured products — and some investors jeopardize their returns by jumping in and out of the market at the wrong time. As well, unsuitable products are sometimes sold to investors. Often, adds Hodson, there’s a shortage of official Street commentary on IPOs because of the involvement of the underwriting firms, and he will comment on these.

“A lot of people are getting frustrated; they think the [investment] industry is stacked against them and they’re tuning out,” he says. “But they’re missing opportunities. I don’t want to manage money, but I’ve been around a lot of years and have opinions.”

Hodson says Canadian MoneySaver is a complementary vehicle for his new 5i website, as they share a similar investor-friendly philosophy and educational slant. Canadian MoneySaver focuses on broader wealth-management issues rather than individual stocks, promoting a long-term, conservative investment philosophy and personal finance strategies such as dividend reinvestment plans.

This print and web-based publication, which comes out nine times yearly, is helpful to retirees, Hodson says, which means the demographics are in its favour. The magazine has a stable of 61 freelance writers who write for free, most of whom work in the financial services industry. The publication is financed by subscription revenue rather than advertising.

Hodson has no plans to change anything except to move Canadian MoneySaver’s head office to Kitchener. He won’t disclose the cost of acquisition or the circulation, but says the magazine is “profitable enough to pay a lot of bills for 5i.” A subscription costs $24.95 a year, but Hodson is offering it free to 5i’s early subscribers. The magazine also is available on newsstands.  IE