Long term big thing for HughesLittle

COMMENT

Another

money management

firm has been born in Vancouver.

HughesLittle Investment Management Ltd. — the creation of Mark Hughes and Joe Little — has received all the necessary provincial and federal regulatory clearances and so far about $15million in client assets has arrived at the door.

“For us, it’s a good start,” said Little, who added the “value-oriented” firm has a straightforward investment approach. “Our model is to look at good businesses run by good people and buy them at good prices,” Little added over lunch this week in Toronto.

The two founding partners, both of whom are chartered financial analysts, are well-known to each other. Both spent about a decade working with Duncan Ross Associates Ltd., another Vancouver firm. Both left following the full-time return of Robert Ross, the firm’s founder. At that firm, Little was the stock picker while Hughes was the president.

“It was a natural for us to get together, so it has been an easy transition,” said Hughes, who will focus on the administration and client servicing.

“There are only two of us, so we both do whatever has to be done,” he added, noting that HughesLittle, just like Duncan Ross, will have two pooled funds, each with a 1% management fee. The first fund (known as the balanced fund) is RRSP-eligible, while the second fund (known as the Value Fund) is for taxable investors.

The funds are available in B. C., Alberta and Ontario and are sold via the accredited investor rule (or the provincial equivalent) and generally require a six-figure investment. For those who have a larger pile, segregated management is also available.

At his new firm, Little is not planning any major changes in investment philosophy. For starters, he doesn’t bother about things like sector allocation and will continue to work with a pool of 50 to 60 stocks that have served him well in the past. And he doesn’t select that pool on the basis of certain financial ratios — such as price/ book, dividend yield, return on equity or dividend growth.

Little can do that because, like all good money managers, he spends most of his day reading — mainly corporate filings and periodicals but little in the way of brokerage research. As a result, most of his day is not spent buying and selling securities.

Indeed, when I met both of them for the first time a decade ago at the offices of their former employer, I was amazed how serene and academic-like their office was. There was barely any noise but there were lots of bookfilled offices. And little trading: They told me that in the previous year they had sold one stock and used the proceeds to buy another. In contrast, some mutual funds turn over about once a year.

Little is not concerned that the firm is being launched when the North American stock markets are at near-record levels. The reason: They don’t plan to be fully invested straightaway. “ We see ourselves as long-term investors/ owners rather than short-term stock traders.”

Accordingly, he will be patient and claims opportunities will arrive in due course. “Opportunities arrive in all forms. At times, they are there in large pockets; at other times, they are there in small ones. And we can operate with the small ones because we aim to hold the companies for the long term,” he added, noting that in his former life, his fund was at times 50% invested in cash and/ or bonds.

“ We can afford to be patient and are not under any pressure to invest,” Little said. “ We invest when the opportunities arise. Our clients are paying us to be selective and patient.”

Not unexpectedly, Little is tight-lipped about the stocks that either he is buying or wants to buy. All he would say is that in the past, companies such as Berkshire Hathaway, Four Seasons, Great West Life and the Progressive Corp. have been part of the portfolio. Footnote Lack of space meant we could not report that some unitholders at Arriscraft Income Fund are in the process of getting organized preparatory to starting an action. It’s still early days and no action has been launched or certified by a court.

That entity was taken public by BMO Nesbitt Burns late last year at $10 a unit. The units now trade at $4 a piece, thanks to a late July, 2005, announcement that the fund was in breach of its financial covenants and that it had suspended distributions. Canada bonds

It’s not the biggest of its kind, but at $5.55billion the recent offering of Canada Mortgage Bonds is right up there.

But the issue — divided into two tranches, one part of $4.35billion of 3.55% five-year bonds and the other part for $1.2-billion of five-year floating-rate notes — was done at the lowest spread.

When the program, which is backed by the federal government, was launched about five years ago, investors were able to extract a 15-basis-point premium above Canada bonds of comparable term. Now they have to be satisfied with eight basis points.

On this week’s deal, TD Securities was the book runner.

Financial Post

bcritchley@ nationalpost. com