Money manager's mea culpa cost him nearly $1 million

Francis Chou returns fees to money-losing Opportunity Fund

Feb 26, 2016 @ 3:09 pm

By Bloomberg News

Francis Chou is feeling the pain of his U.S. investors after his Opportunity Fund suffered its worst annual performance ever in 2015.

Mr. Chou, one of Canada's longest-tenured value investors, decided to return $918,468 to the fund, a sum equal to most of last year's advisory fee, according to a regulatory filing. The mutual fund slid 22% last year, Bloomberg data show.

This voluntary contribution was a gesture of goodwill” after 2015 returns lagged prior years, Mr. Chou, who was named fund manager of the decade in Canada by Morningstar Inc. in 2004, said in the Securities and Exchange Commission filing on Feb. 18. And he didn't stop there. As of Jan. 1, Mr. Chou said he'd waive the fund's entire advisory fee indefinitely.

Rebating fees is “pretty rare” because most money managers simply say they'll try to do better after a bad year, Russ Kinnel, director of mutual fund research at Chicago-based Morningstar, said in a telephone interview.

Mr. Chou, 60, took a similar step after his flagship Canadian fund, Chou Associates, fell 29% during the 2008 financial crisis.

Born to Chinese parents in India, Mr. Chou hasn't followed the traditional career path of a mutual fund manager. He initially worked as a Bell Canada telephone technician after emigrating in 1976. He started an investment club with Bell employees in 1981 and founded his own money management firm five years later. The company, which has one other employee besides Mr. Chou, now runs about C$900 million ($665 million).

The U.S.-based Opportunity fund had an average loss of 2.3% during the past five years, trailing 90% of peers, according to data compiled by Bloomberg. The S&P 500 increased an average of 10%, including dividends, in the period.

Mr. Chou generally invests in stocks that are trading below their intrinsic value and that offer potential for long-term growth, according to the fund's prospectus. It concentrates on about 10 to 35 securities and may invest in debt, including high yield bonds. The fund charges a 1% management plus expenses.

As of Dec. 31, it held 38% of net assets in cash. Sears Holdings Corp. accounted for 15% of assets and Canadian pulp and paper producer Resolute Forest Products Inc. was 12%. Sears and Resolute dropped 32% and 57%, respectively, last year.

Mr. Chou says his long-term record is much stronger, noting that $1 million invested with him in 1981 would be worth roughly $58 million today. Morningstar says the Chou Associates fund has generated an average annual return of 10.6% since starting up in October 1986, ranking it as the top performer among Canadian funds that have continued to operate over the ensuing three decades.

“His philosophy is value investing at its purest,” said Morningstar analyst Achilleas Taxildaris. “He always tries to buy a dollar for 60 cents.”


What do you think?

View comments

Recommended for you

Featured video


Why some retirement plan advisers think Fidelity is invading their turf

InvestmentNews editor Frederick P. Gabriel Jr. and reporter Greg Iacurci talk about this week's cover story that looks at whether Fidelity Investments is stepping on the toes of retirement plan advisers.

Latest news & opinion

8 apps advisers love for getting stuff done

Smartphone apps that advisers are using in 2018 to run their business more efficiently.

Galvin's DOL fiduciary rule enforcement triggers industry plea for court decision

Plaintiffs warned the Fifth Circuit that Massachusetts' move against Scottrade signaled that the partially implemented regulation can raise costs for financial firms.

Social Security underpaid 82% of dually entitled widows and widowers

Agency failed to tell survivors that they could switch to a higher retirement benefit later.

Is Fidelity competing with retirement plan advisers?

As the Boston-based mutual fund giant expands the products and services it brings to the retirement market, some financial advisers say the firm is encroaching on their turf.

Gun violence hits investment strategies, sparks political debates with advisers

Screening out weapons companies has limited downside.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print