Normally, I tend to avoid actively managed funds, but Steadyhand is trying to break away from the industry mold and add value. To keep fees down, the firm doesn’t pay trailers to financial planners and brokers; instead the funds are sold directly to consumers. Accordingly, the MER is 0.65% on the money-market fund, 1% on the bond fund, 1.35% on the equity fund, and 1.7% on both the global and small-cap funds. That’s pretty good for Canada.

Second, Steadyhand aims to go back to the days when mutual funds didn’t track the indexes and build up assets through marketing campaigns and trailer fees. Their money managers are non-benchmark oriented and run concentrated portfolios with low turnover. In other words, they aren’t constrained to buying market portfolios and being closet indexers.

One thing that makes Steadyhand interesting is Bradley himself. He is the former CEO of Phillips, Hager & North Ltd. and played a key role in building up that low-fee, direct-to-consumer mutual-fund franchise. PH&N has been good to its clients over the years and has top offerings in bond and dividend funds.

Bradley reports Steadyhand has about 750 accounts with $90 million in assets under administration. He says his funds did manage to grow assets during the recent bear market but the increase was not as great as hoped for.

“It been a tough slog,” Bradley adds. “Our timing [launching the funds on the eve of the bear market] was not great.” So he intends to keep plugging away at building awareness and growing the client base until there is sufficient critical mass.

The equity fund is trailing the market but this is where active management may actually be a positive. The funds’ holdings are focused on a more diversified and higher quality group of companies (consistently generate cash and moat-like) than the resource- and financial-laden TSX. “Rather than loading up on these more economically-sensitive stocks to match the index, [the fund] focuses on the best that Canada has to offer and looks outside our borders to add more growth and balance to the portfolio [rise in loonie has offset gains on U.S. holdings],” notes commentary from the fund managers.

According to S&P’s research, just 38.9% of actively managed equity funds in Canada outpaced the S&P/TSX Capped Composite Index during the bear market from August 2000 to December 2002. In the U.S, only 29% outpaced the S&P 500.

True, actively managed funds can hold cash balances, shift into defensive stocks, etc. – so there is a presumption they would do better. In fact, the average return earned by active Canadian equity funds does exceed the index during bearish phases.

But this average return “reflects the strong performance of only a few funds,” declares Jasmit Bhandal, director of Standard & Poor’s Index Services. “The majority of Canadian Equity funds still underperformed their benchmark.”