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Discussion Starter #1
Hello,

I am fairly new to investing and would like to take a position in the Beutal Goodman Small Cap D fund (good rating on morningstar and high since inception return). While looking at the prospectus, this statement was listed under risk:

"As at May 31, 2016, one investor owned units representing approximately 71% of the net asset value of the Fund. If such investor requested the
redemption of all of its units, the Fund may have to alter its holdings significantly and purchase or sell investments at unfavourable prices. This
could reduce the returns of the Fund."

I am hoping someone can break this statement down for me and help me understand the consequences of what would happen if this investor redeemed all of their units.

Thank you!
 

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Well, it says one person owns 71% of the fund and wants his money. In order to accommodate this request, the fund would have to basically liquidate a majority of its holdings. If they sell now, they probably won't get the best prices and they may have to sell more of some stuff than others depending on their liquidity.

Value investing usually means buying when it's undervalued and selling when its true value is realized. That time may not be when this majority owner forces the fund to sell, when they sell the gains/losses are locked in and the returns are recorded. In a down period, that can affect the fund's return, so it'll look bad.

Also, there is less money in the fund, more than 70% less, which means they probably can't buy the same way they had in the past. Plus, for people who only look at returns and not holdings as their investment decision maker will probably avoid this fund in the future.

Long story short, Things don't look good for this fund going forward.
 

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Discussion Starter #3
Well, it says one person owns 71% of the fund and wants his money. In order to accommodate this request, the fund would have to basically liquidate a majority of its holdings. If they sell now, they probably won't get the best prices and they may have to sell more of some stuff than others depending on their liquidity.

Value investing usually means buying when it's undervalued and selling when its true value is realized. That time may not be when this majority owner forces the fund to sell, when they sell the gains/losses are locked in and the returns are recorded. In a down period, that can affect the fund's return, so it'll look bad.

Also, there is less money in the fund, more than 70% less, which means they probably can't buy the same way they had in the past. Plus, for people who only look at returns and not holdings as their investment decision maker will probably avoid this fund in the future.

Long story short, Things don't look good for this fund going forward.
Thank you for your reply. So, in your opinion, it would be best to avoid a fund which has one or two parties with such significant ownership?
 

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No idea without reading the perspectus. I tend to care about the company holdings, but a fund that has only a few shareholders does have certain risks that other funds don't.

I'd also point out, I'm not a fan of funds to begin with. I do my own research and buy stocks on my own to ensure I get stuff I want to own and meet my investment strategy.
 

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Is there a specific reason you're after that fund other than good Morningstar ratings and good return since inception? I know nothing about this fund, but in the long run managed funds tend to under perform a passive indexing approach. You may want to check out Canadian Couch Potato, and specifically their model portfolios:
http://canadiancouchpotato.com/model-portfolios-2/

ETFs have very low expense ratios and can cover an extremely wide range of countries / sectors. Might be worth a look as well.
 

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Acvording to the prospectus linked below, there are several beutelgoodman funds which have a similiar disclaimer. Frankly I have not seen this before but here is what I think. It is the same investor( or family) involved and my suspicion would be that it would be the family of the founders of the fund.
How likely is a sudden sale if this is the case? IMNSHO not very. There could potentially be estate issues but I would think there would be a trust and if not I suggest there would an orderly liquidation over a period of time if the estate is properly managed which I suspect it would be. No competent executor would force a quick redemption that could force the value down.
In any event a few comments.
BG funds are pretty small in the big scheme of things so selling off shares may not have as big an impact as onemight think.
While short term performance may be impacted, longer term the performance may improve with a smaller more nimble fund
If I am correct that the family owns the big share, then the management may be more concerned with long term performance than concentrating on shorter term quarterly performance. This would also keep fees lower as the unit holder could vote down any increases.
Of course I may be totally wrong and horribly off base.
Cheers J


https://www.google.ca/url?sa=t&source=web&rct=j&url=http://www.beutelgoodman.com/MutualFunds/Reports/prospectus.pdf&ved=0ahUKEwi35Nzn9rPRAhVL4IMKHfgQCkkQFggzMAI&usg=AFQjCNE0-aP6jI0UpaLhBju8n2F1ASAxxQ
 

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Discussion Starter #7
Is there a specific reason you're after that fund other than good Morningstar ratings and good return since inception? I know nothing about this fund, but in the long run managed funds tend to under perform a passive indexing approach. You may want to check out Canadian Couch Potato, and specifically their model portfolios:


ETFs have very low expense ratios and can cover an extremely wide range of countries / sectors. Might be worth a look as well.
I'm primarily interested because it has a small cap value approach which is consistent with my investment approach. Also, it has returned 13.2% since it opened in 1995, which, correct me if I'm wrong, is a above what a passive indexing approach would return.
 

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Discussion Starter #8
Acvording to the prospectus linked below, there are several beutelgoodman funds which have a similiar disclaimer. Frankly I have not seen this before but here is what I think. It is the same investor( or family) involved and my suspicion would be that it would be the family of the founders of the fund.
How likely is a sudden sale if this is the case? IMNSHO not very. There could potentially be estate issues but I would think there would be a trust and if not I suggest there would an orderly liquidation over a period of time if the estate is properly managed which I suspect it would be. No competent executor would force a quick redemption that could force the value down.
In any event a few comments.
BG funds are pretty small in the big scheme of things so selling off shares may not have as big an impact as onemight think.
While short term performance may be impacted, longer term the performance may improve with a smaller more nimble fund
If I am correct that the family owns the big share, then the management may be more concerned with long term performance than concentrating on shorter term quarterly performance. This would also keep fees lower as the unit holder could vote down any increases.
Of course I may be totally wrong and horribly off base.
Cheers J
Thanks for the insight and angle of thought
 

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Some funds, where it's all one owner, can sometimes inspire some "creative bookkeeping"...
 

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Might "one investor" be an institutional investor, like a large pension fund? Still similar risk of the fund managers deciding to dump the mutual fund; but perhaps less likely than a single person or family.
 

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Might "one investor" be an institutional investor, like a large pension fund? Still similar risk of the fund managers deciding to dump the mutual fund; but perhaps less likely than a single person or family.
I think this is unlikely as there are a number of funds all in this family of funds with the same disclaimer. An institutional investor would negotiate directly with the managment and set up a private account based on an IPS. I just cannot see an institutional investor buying into a bunch of retail mutual funds.
 
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