The Money Tree: A Twenty-Year Nexus Testimonial

He knew one of the investment team members and had been told about Nexus’s disciplined, quality, North American-focussed equity approach. It sounded a bit sleepy, but he recognized that it was very “uncorrelated” to the free-wheeling approach that had shaped his personal investing. At the time, he admitted that he was making the investment partly “to save himself, from himself.” Knowing that his profession gave him lots of exposure to the ups and downs of the equity market, he chose to put the money into the Nexus North American Balanced Fund, which held both equities and investment grade bonds.

In the meantime, he traded his own portfolio and made a number of hedge fund investments. Being “in the know” on Bay St. should surely have given him a leg up. But year after year he would send reams of trading activity reports to his tax preparer which showed meagre positive returns, and in a few cases, net losses. At one point, it prompted his accountant to ask, “Aren’t you in the investment business?”

While the wily veteran knew that Nortel was ridiculously overpriced at $124, it was surely a steal when it pulled back to $36. Those shares were subsequently sold for about a buck.

Then there were the hedge funds. One was a long/short “Opportunities” fund with a spectacular record when purchased. However, when the financial crisis hit in 2008/09, and the fund was down 60% or 70% from its highs, the fund holders were given the choice to redeem at those depressed levels or give up their redemption rights for a 12-month period. More like an “oops” fund than an “opps” fund. Another hedge fund was invested only in energy names, both long and short. Somewhat put off by the hedge fund experience, our hero decided to exit this one too, even though after paying the standard “two and twenty” fees each year, the value of his investment had gone nowhere. He was worried when he discovered that to redeem out of the fund, he had to give 60 days’ notice, and that the fund would be cashed out at the following quarter end. Nothing like having to wait nearly three months to see what you’ll get for your fund units. (As it turned out, in the interim, something big happened in the Middle East, and he actually made some money, for which he took full credit.)

Meanwhile, the investment at Nexus just kept “doing its thing”. The Rule of 72 says that if you divide your annualised return into 72, it will tell you approximately how long it will take for an investment to double in value. Between November 2001 and February 2021, the Nexus Balanced Fund has had an annualised return of an even 8.0%, before fees. At that rate of growth, the Rule of 72 suggests that the investment would double after 9 years, and that it would quadruple after 18 years.

Somewhere along the way, the 20-year Nexus client took out enough money to purchase a country property. Yet even so, the value of his remaining investment is still more than what he originally put in.

Steady compounding of returns is not very exciting, especially in the early going. But it’s rather like watching a newly planted tree in your back yard grow from month to month, with time, it will be as tall as your house.

And in case you hadn’t guessed, the 20-year Nexus client is me.