Letko Brosseau is targeting the retail advisor channel, expecting their research quality and active management will set them apart
Letko Brosseau turns 40 next year and the firm spent the past 39 years managing assets for institutions. Pensions, foundations, endowments, unions, corporations, and nonprofits all used the firm for public equity and fixed income strategies. That model was successful enough to attract around $22.5 billion in assets to the firm. As of this week, however, the firm is branching out, launching a suite of eight new mutual funds.
Alexander Letko is leading the firm’s new retail charge. The Portfolio Manager and Regional Manager for Central Canada explained why his firm sees opportunity in the retail channel now, and why they elected to focus on mutual funds. He spoke about how the firm wants to build relationships with advisors and the problems he hopes the firm can help solve.
“It may seem like a sudden turn of events, but this is something we’ve been contemplating for a long period of time,” Letko says. “Our focus has been on catering to some of Canada’s most complex institutions, and going on the mutual fund route allows us to leverage those institutional capabilities for the financial advisor community in Canada.”
Because so much of institutional asset management happens through intermediaries and consultants, Letko says that his firm wanted their retail program to focus on advisors, rather than the DIY market. The choice to launch mutual funds rather than ETFs was explicitly made to better position themselves as an advisor-facing organization.
Letko believes his firm can help advisors, who he says are facing challenges around the sheet quantity of noise out in the market. Short-termism, he says, has been an increasingly powerful trend on the market and one that he thinks the firm’s long-term perspective can help with. Performance may back that view up. According to RBC’s Pooled Fund Survey from Q1 of this year, the Letko Brosseau Balanced Fund posted a one-year rate of return of 17.36 per cent and a five-year rate of return of 13.16 per cent.
The firm’s approach to markets is active and, Letko explains, seeks differentiation through an in-depth research process. He’s quick to highlight the expertise of their team members, noting that their lead mining analyst is a trained geologist, their health care expert is an ex-pharmacist, and their tech analyst is an engineer. The team of 20 portfolio managers and analysts is organized along global sector lines, rather than country-specific division by asset class. The goal, he says, is to construct portfolios that are ‘benchmark agnostic.’
Instead of trying to track a benchmark, the Letko Brosseau team looks for companies trading at reasonable valuations with good growth prospects. They try to ignore what others are looking to and instead focus on what can deliver the highest possible risk-adjusted return to client portfolios. While that sounds simple enough, Letko notes that conviction is key to success. The result is portfolios with very high ‘active shares’ or the per centage of the portfolio that doesn’t match a benchmark. In the firm’s emerging market portfolio, the active share is over 90 per cent. In Canadian equities it’s around 70 per cent. Letko says his firm is offering differentiation.
Contrasting that active and differentiated approach with an index model, Letko notes the risks of a potentially top-heavy market, heavily weighted to technology names and the AI mega-trend. Those heavy weights, he says, could drag down whole indices if something goes wrong, which leads him to prefer more active strategies.
For all the ways he highlights uniqueness in the approach, Letko knows his firm is entering a crowded space. The mutual fund industry in Canada manages around $2.7 trillion across around 3,400 distinct funds. Despite that saturation, Letko insists that his firm’s funds are differentiated and that the fundamental research-based process is worth advisors’ consideration, especially given the firm’s history on the institutional side.
“We are not the new manager on the block. We’ve been around for 40 years,” Letko says. “And so what I think is exciting about this product suite and differentiating from other products that come to market is that they come with a track record of many years of performance. And so this is just a continuation of what we’ve been doing for a long period of time.”
