BUSINESS WATCH

A singular approach to investing

Peter C. Newman July 21 1986
BUSINESS WATCH

A singular approach to investing

Peter C. Newman July 21 1986

A singular approach to investing

BUSINESS WATCH

Peter C. Newman

At a time when trying to guess the direction of the stock market is baffling even to the professionals, more and more Canadians are turning to mutual funds as a way of at least spreading their risks. Among the most successful is the fairly new and conservatively managed Trimark group, run from the caverns of Bay Street by Arthur Labatt and Bob Krembil.

This summer Trimark plans to add a third investment instrument to its roster—an interest fund that will specialize in short-term government-guaranteed as well as corporate bonds. Longterm safety rather than quick profits will be the guiding principle here, but some of Trimark’s existing portfolios have been outstanding performers.

For the 12 months ended March 31, 1986, Trimark’s main investment fund showed an appreciation of 39.9 per cent, while its Canadian fund increased by 20.4 per cent. More than $800 million has so far been invested by 79,000 clients. The funds are so popular that 6,000 new subscribers are being added per month. “Our goal is to manage Canada’s best-performing funds over a 10-year period,” I was told by Arthur Labatt, who put Trimark together in 1981. “Our fifth anniversary is coming up next Sept. 1, and I expect that our numbers will top the charts by then.” Trimark has become so well known that its main equity fund has started taking orders from Europe and the Far East, and the company recently rented an extra 6,000 square feet of office space to expand its facilities. The unit value of Trimark’s RRSP equity fund has grown by 133 per cent since its inception in 1981. “Trimark has a sound long-term approach,” says Fred Soyka, a mutual fund specialist with Moss Lawson & Co. Ltd. in Toronto, “plus contacts that provide worldwide investment perspective, the continuity of fund management and the advantage of being run by a small, dynamic team that also owns a large part of the company.”

Krembil and Labatt each own about one-third of Trimark, with the balance of the shares held internally by other executives and a few outside investors. The management fee to subscribers averages about 1 per cent.

Labatt is the last member of the once-prominent London brewing family still actively involved in Canadian busi-

ness. “I never really worked for the family firm,” he recalls, “because when I was growing up it was very apparent that the family was looking for a buyer.” After apprenticing (and earning his C.A.) at Clarkson Gordon, Labatt spent a dozen years with McLeod Young Weir Ltd., mainly in research. When McLeod decided to open a fulltime European operation, the entire continent was split between Labatt and one other salesman. “We started out

with Col. Gordon Weir’s original list of contacts that was easily 40 years old, and completely out of date, but it was wonderful training,” he recalls.

By 1973 Labatt was ready to leave the brokerage business. He became a partner of Lome Webster who, among other things, was trying to revive Bolton Tremblay Inc., an investment management firm that was running many Quebec-based pension funds. That was when he first met Bob Krembil, who at the time was managing a group of

funds for Commercial Union Assurance. Krembil eventually switched to Bolton Tremblay, and in 1981 the two of them, along with a marketing expert named Michael Axford who had been hustling mutual funds in Halifax, decided to strike out on their own, using an original capital base of about $700,000, partly underwritten by personal friends.

Krembil, the head of a team of three that chooses the actual investments, follows a deceptively simple philosophy: visiting as many factories and offices of overseas companies as he can and comparing the market’s judgment of performances with his firsthand inspections. “We buy only when we feel we’re bringing something to the table—in terms either of new information or a different method of evaluating potential. That means we usually stay out of things that are fashionable and that involve a lot of hype,” he says.

One of the main tricks Trimark uses to keep its portfolio trimmed to wellperforming stocks is to limit the list to about 35 equity issues. That means every time a new name is added to the list, the worst-performing stocks are dropped. The current portfolio includes such obvious choices as Alcan Aluminium Ltd., Canadian Pacific Ltd., Eastman Kodak Co., General Motors Corp. and Xerox Corp. But it also lists more obscure offshore stocks such as Daniel Industries Inc. of Houston, Tex.; Halliburton Co. of Dallas; Coherent Inc. of Palo Alto, Calif.; Hercules Inc. of Wilmington, Del.; Rogers Corp. of Rogers, Conn.; and Zygo Corp. of Middlefield, Conn. The largest single foreign holding is nearly a quarter of a million shares in Matsushita Electric, the Japanese consumer electronics giant.

Trimark’s Canadian Fund reveals some remarkably optimistic judgments about domestic institutions that don’t exactly top the list of most Canadian investors’ dream portfolios. Trimark purchased 1,614,800 shares of Dome Canada Ltd. (now known as Encor Energy Corp. Ltd.) and holds 1,200,000 shares in the Bank of British Columbia. “If people look at your holdings and think, ‘Hey, that’s a pretty good list of companies,’ you’re probably not doing your job right,” says Krembil. “We should be doing things that are out of the mainstream, not just what’s fashionable and popular.”

For now, at least, that singular approach seems to be working.