Mutual Fund Lone Wolves

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The boutique purveyors of the mutual fund world have different branding and distribution challenges than their larger asset management counterparts.

The managers of four boutique fund shops: Kent Croft, president and co-portfolio manager at Croft Leominster, Mark Travis, president and portfolio manager at Intrepid, Brian Frank, president of Frank Capital and manager of the Frank Value Fund, and Philip Tasho, chief executive officer & chief investment officer at TAMRO, recently sat down with Money Management Executive to talk about how they differentiate themselves from larger shops and what's worked for them in gaining wider distribution for their funds.


Independent managers have different distribution challenges than larger shops. Can each of you tell us how you differentiate yourselves from larger companies and how you communicate this to your shareholders?

Travis: Over time if you communicate clearly with shareholders, you end up with the shareholders you deserve. We send quarterly updates and conduct webinars to share our details of our strategy. Also, we have a dinner event annually where we invite in all shareholders and advisors. Once a year, we bring advisors into the shop for a few days, putting them up in a motel, to help them understand better what we do and how we do what we do.


Croft: One thing we stress again is how we invest and how we do it differently as independent firms. We are a long-term low turnover strategy. We'll buy and hold for years, this doesn't always jive with the culture of instant information and short-term thinking. We stress that this strategy is a way shareholders can keep money in their pocket. We started out quarterly giving updates on the funds and found we didn't have a lot of interest in that. What we've done is do some independent research papers on areas we've invested to give people an idea of how we do things.


Tasho: When we started TAMRO, the most important thing was to affiliate with a firm that would help us in the distribution area. That was the Aston group. They introduced two mutual funds, which we sub-advised and still do. It was helpful initially to get this sales force behind us to market these two funds. We put out quarterly commentary and monthly reports to get as much information to prospective clients as we can. Six years later we affiliated with a third party marketer called Stellate Partners, an institutional marketing boutique, who helped open up our distribution in the consultant community.


Frank: The biggest challenge is not having a brand name. The expression that we hear a lot from advisors is that it's better to fail conventionally. If they pick a Fidelity fund and that blows up, well then it's still Fidelity. If they choose one of us and we have bad performance, the client comes in and says, who the heck are these guys and why did you pick them? There's more downside in picking an independent because they don't have that brand name. The way we fight against this is with the visibility, having a large online presence and sending monthly updates. I try and comment personally on any macro event that's grabbing headlines and how it relates to equities.


 What's one thing that you did that made an impact on the distribution of your products?

Travis: I remember distinctly being in the Charles Schwab headquarters with a gentleman named Don Penner, trying to get both of our funds on the Select list. He was talking about price and I told him, "Don, I don't want to let 25 basis points come between you and I and a good time." I think that we have been very aggressive in trying to strike dealer agreements wherever we could. In the U.S. the only larger platforms we are not on are Wells Fargo/Wachovia and Morgan Stanley Smith Barney, but even with those you are talking about 16,000 sales reps. Those are worthwhile agreements if they can be struck in a fashion everybody likes. We are not at the moment working with Morgan Stanley Smith Barney. We are closer than we have been with Wells Fargo/Wachovia.


Croft: We have never had a marketing person going back to 1989 when we started the firm. In 1995, we started the funds really just for people that didn't have a million dollars for the separately managed accounts. Ten years later we had a good track record and we were saying we really know nothing about marketing. We were approached by a PR firm that said we can partner with you and help get the word out. At the same time, we were discussing closing down the funds for compliance and cost issues and because there weren't a lot of assets.

Ultimately, we said "Goddamn it we'll spend that $10,000 and 25 bps and pay Schwab to get on their platform." Same thing with Fidelity. At the time we didn't see the benefit because we didn't know that much about it, but we have realized that this is how we were able to grow the fund from next to nothing to hundreds of millions of dollars. You can all have the performance in the world but if no one knows about it, it doesn't really matter.


Frank: We target the independent brokers because our story resonates very well with someone who left Smith Barney and became a broker for one of the independents like Commonwealth or Cambridge or LPL. Offering them a meeting with the portfolio manager, this is something Fidelity can't do. You can have personal touch points with advisors. Recently, I did a quick economics presentation for an RIA client and about 50 of his top clients. It made him look good because he had a portfolio manager in there and makes us look good for demonstrating our expertise to the client.




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Money Management Executive