“However beautiful the strategy, you should occasionally look at the results” - Winston Churchill
If you need some background about EdgePoint, I previously wrote:
a rant about Bob Krembil
a diatribe about Cymbria
and a harangue about Tye Bousada
And Part 1 of these latest vituperations can be found here. Here's Part 2:
As far as investment geeks go, Tye Bousada was a relative latecomer, transitioning to the industry only at age 24. His first job after graduating from Ivey was as a diaper salesman for Procter & Gamble. How come you can buy a Tesla online, but you still can’t buy Pampers directly from Procter & Gamble? This age-old separation between manufacturer and distributor has proven to be a resilient model. Bousada’s EdgePoint has adopted this same model to great success. Less than 1% of EdgePoint retail assets comes from investors directly (without the use of an “advisor”.) In fact, it’s no longer possible for an individual investor to buy EdgePoint funds directly.
They say they stopped accepting money directly from retail investors partly because unadvised clients withdrew 68% of their assets during the initial pandemic panic (compared to only 14% for their advisor-intermediated assets). But how do they know that people astute enough to avoid the extra advisor fees, didn’t redeem to take advantage of the once-in-a-lifetime GameStop bonanza? Hmmm? We don’t know that! EdgePoint is very good at coming up with these cute stories, but over the past few years, the retail investor has been astonishingly resilient. EdgePoint promotes industry-commissioned studies that claim that advised investors do better than DIY investors. I’d take all these studies with a heavy grain of horsecrap. The proper comparison is between genuine indexers and the entire population of advisors. As it turns out, even an advisor savvy enough to use EdgePoint, would probably not have kept up with the indices over the past ten years. So where does that leave others? Here’s Bousada answering the performance question at his alma mater earlier this year:
Citing the “from inception” figures is convenient. EdgePoint started with major outperformance in their early years post the 2008 crisis. Is performance in those early years, when they had less than a billion to manage, still relevant now that they have $25B to manage? EdgePoint cannot possibly be as nimble as they used to be. And nimbleness is important for them: their portfolios have annual turnover in the 20-30% range, pretty high for a “business investor”. Their Canadian portfolio even had a private company investment (Real Matters) that had an IPO in 2017. I’m sketchy on the details, but my notes say that Cymbria invested in Real Matters when it was worth just a few millions.
EdgePoint says their funds are for investors with at least a 5 year horizon. However, where they truly draw a line in the sand is the 10 year-mark. They say point blank in the Cymbria annual report, “EdgePoint launched with three goals: 1.Achieving investment results at or near the top of our peer group over 10 years…” The “Global Portfolio” is their largest fund with almost half the firm at $12B in assets. That fund is bottom quartile over five years and second quartile over 10 years. It’s lagging the global indices by about 1.5% annualized in the last decade. Fundata gives the fund a C grade. I’m perfectly happy to give them a pass on all that - it’s been a difficult time for their more price-sensitive, contrarian style. But SmugPoint failing on the number 1 goal that it freely chose for itself, has to be one of the biggest schadenfreude events in Bay Street history. Even Slippery Som would close the fund if that happened. Probably not, you’re right. Try to contain your excitement but if you have stuck with them for 10 years, during which they time they will have collected 800 bps of fees, you get a 10 bps annual rebate from then on! And you also get the solemn pride of having made billionaire Krembil richer.
Their Canadian fund was also looking iffy a few years ago. But they had exposure to energy which really boosted their fortunes in the past 3 years. In late 2019, they even launched an energy fund to take advantage of the beaten-up sector that did really well (and is no longer open for new investors). They also managed to catch the turnaround in Fairfax in that fund. But their Canadian equity fund is only about 10% of their assets.
Bob Krembil said at the foundation of the firm that for EdgePoint to reach billions of dollars in assets under management “will be highly unlikely”. He added: “Our ambition is to produce a good rate of return.” Surprise, surprise, they somehow managed to cobble together $25B, but the performance results are ambiguous.
Was there really a need to start EdgePoint? Couldn’t they have just sent all the clients they claim to care so much about to Mawer? Mawer doesn’t pay sales commissions! Those greedy bastards keep all the fees to themselves, charging as much as 1.30% in management fees. I am surprised that Mawer gathered $86B in AUM without bribing advisors.
None of this changes my view that the EdgePoint people are competent investors, whose outlook is timely because there’s probably a bifurcated market of both expensive and cheap stocks. Finally, a good percentage of my paying subscribers are financial advisors. It goes without saying that terms such as “money-hungry hoe” or “glorified salespeople” could not possibly apply to you, dear paying subscriber. Although, unlike EdgePoint, I do not insist on a minimum 30-minute meeting before allowing you to subscribe, I nevertheless sense that you are in the upper echelons of your profession, both ethically and knowledge-wise.