The Nexus Pooled Funds Celebrate Their 20th Anniversary!

Topic: Investments

Geoffrey J. Gouinlock, CFA

December 6, 2017

Image used with permission: iStock/mattjeacock


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The Nexus Pooled Funds Celebrate Their 20th Anniversary!

September 30th marked the twentieth anniversary of the Nexus North American Equity and Balanced Funds. How the world and the Funds have changed in the years since they were established!

A trip back in the time machine to those days reveals that our business and the industry were organized and managed very differently than they are today. At its inception in 1996, Nexus offered bespoke, individual accounts that allowed investors to keep a beloved position or two, as well as preserve the tax cost base of holdings they were transferring into our management. Such customization was a real selling point. Managers that used pooled funds were thought to be less client-friendly and unnecessarily rigid for high net worth clients. As a small firm, we were happy to accommodate this client preference for individual accounts.

Increasingly, however, we realized that there was a great opportunity to offer our investment approach to clients with smaller portfolios. But it was too costly and administratively burdensome to manage these portfolios as individual segregated accounts. The introduction of the two Nexus pooled funds seemed to be the obvious answer. By using pools, we could achieve the necessary diversification at a reasonable cost just as easily in smaller accounts as we could in larger ones.

Beginning in August 1997, with seed capital from the partners, we established the Nexus North American Equity Fund and the Nexus North American Balanced Fund. One month later, with the mechanics established, we opened them to clients. Unfortunately, it was not an auspicious time for a fund launch. The Asian financial crisis was in full swing and our portfolios included companies that were hit hard. As the Asian Crisis faded, the “tech bubble” gathered steam and Nexus again was out of step with the market’s love affair with dot-com stocks, and the likes of Sun Microsystems, Nortel or 7/24 Solutions. Our quarterly reports from that time have an apologetic rather than excited tone. They were filled with reminders to our new fund unitholders that we take a patient long-term approach and don’t invest in the latest fad.

After two years, the Equity Fund trailed its benchmark by almost 40 percentage points and the Balanced Fund lagged by almost 25%. Ouch! With such a terrible early track record, we wondered whether we would ever get out of a hole so deep. Near the peak of the tech bubble in early 2000, we were more certain than ever that it was, indeed, a bubble. But we wondered whether we would survive till it burst.

Thankfully, the bursting of the tech bubble in 2000 ushered in better times for Nexus and our clients. In short order, our outright and relative performance rebounded. The challenge of those early years is now a distant memory. Both the Equity Fund and the Balanced Fund have excellent track records since their inception.

Today, the Equity and Balanced Funds act as models for other portfolios managed at the firm. Together with our Income Fund, which was established in September 2002, and our International Fund, established in September 2015, more than half of the $1.8 billion of firm assets are managed in these Funds. And just as at the start, Nexus employees and their families remain large unitholders. We eat our own cooking – our investments are managed right alongside those of our clients.

It would be nice to believe that the next 20 years will be a little less eventful than the last twenty. But, as we frequently remind clients, we do not know what the future holds. No doubt there will be other challenging periods like the funds’ early years. If we have learned nothing else from the last 20 years, it is this: hard work, combined with a disciplined approach and an emphasis on quality, will lead to a positive outcome for our clients over time.

To longstanding unitholders, as well as newcomers, thank you for your support along the way.

1 Chart represents the growth of $100 invested in the Nexus North American Equity Fund from its inception date of August 31, 1997 until October 31, 2017. Returns presented prior to the deduction of investment management fees. Past performance is not indicative of future results.

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