No-load fund marketer Altamira Investment Services is looking to halt a continuing erosion in market share by adding new products and moving into the discount brokerage business.
In recent months Altamira, the largest independent direct seller serving small retail investors in Canada, has expanded into index funds, introduced an innovative specialty fund focusing on the Internet, and bought a discount broker that enables it to get into the business of offering third party funds.
Under the leadership of Gordon Cheesbrough, president and ceo, the initiatives are part of a strategy to create a more diversified company that offers advice and funds from numerous families and which is not wholly dependent on how its proprietary funds and portfolio managers perform.
Changes in direction are badly needed to halt the declining fortunes of Altamira, whose market share has plunged to 1.37 percent of member assets of the Investment Funds Institute of Canada as of Nov. 30, down from 1.99 percent 12 months earlier and 3.09 percent in November 1996. In the 12 months ended in November, the most recent comparable statistics available, Altamira's fund assets of $4.4 billion (Canadian) dropped 21.1 percent from a year earlier. By comparison, assets of all IFIC member firms are up 14.4 percent.
Cheesbrough, who has been with Altamira for one year, inherited a company reeling from the impact of uncertainty about the company's ownership and poor fund performance. A new ownership agreement for Altamira, which is privately held, under which TA Associates of Boston became a major stakeholder, left Cheesbrough free to deal with the lagging investment returns.
"The first thing that will never change is that you have to have good performance," Cheesbrough said.
Early on at Altamira, Cheesbrough had to deal with the fallout from a departed star manager. In May 1998 the company lost Frank Mersch, who seemed to have lost his once outstanding equity investing acumen and who resigned while under investigation for securities violations over his personal trading activity.
Cheesbrough replaced Mersch, who was known for making large sectoral bets and trading actively, with a three member team taking a more disciplined approach to risk management. Cheesbrough's goal is to get all of Altamira's funds performing in the second quartile of their peer group, or better.
"I think we've made a good start. We're not finished," he said.
Having made progress on revamping Altamira's in-house investment team, Cheesbrough has also made a radical move for a company known mainly for aggressive, active management by adding three new index funds. But Cheesbrough, formerly chairman and ceo of the major Canadian full service brokerage ScotiaMcLeod, said the key to success was to avoid having clients shop elsewhere.
"It's important to give our clients choice," said Cheesbrough. "We think if there are individuals who want to invest in index funds, we should give them that choice," he says.
Altamira also attracted attention by positioning the index funds as low cost alternatives to established index funds offered by banks.
That does not mean that Altamira is turning into a northern version of Vanguard by shifting toward more plain vanilla offerings. On the contrary, its most heavily promoted fund has been its recently introduced Altamira e-business Fund, which invests in technology and non-technology companies involved in Internet-based commerce.
"It was just such a natural," said Cheesbrough of the fund, whose launch has coincided with a buying frenzy in Internet-related stocks.
Perhaps signaling the most significant change in direction is Altamira's acquisition of the small discount brokerage, Mutual Fund Direct of London, Ont. The acquisition gives Altamira a foothold in the business of selling third party funds and providing independent advice, while remaining true to its roots as a company dealing mainly with do-it-yourself investors.
It is likely that Mutual Fund Direct, which will operate independently from Altamira's core mutual fund business, will move fairly soon into offering selected portfolios of multiple families of funds, including the Altamira house brand.
As a smaller player in the discount brokerage segment dominated by the big banks, Mutual Fund Direct will not aim to be the price leader.
"I don't think cheapest is the best way to go," said Cheesbrough. Despite his introduction of low-fee index funds, Cheesbrough is staking much of Altamira's future on being a value-added advice giver.
uFirst International Asset Management, a Toronto based consolidator in the money management industry, has acquired Triax Capital Holdings, a manager of specialty funds including venture capital, high yield and resources funds. Founded in 1995, and also based in Toronto, Triax has about $650 million (Canadian) in assets under management.
Under its new ownership, Triax will continue to operate as a distinct division, and key managers including Gordon MacMillan, Triax's president and ceo, will stay on.