Scudder departs from Canada

Most of the foreign fund companies that have ventured into the Canadian market have done extremely well for themselves.

Fidelity, the Boston-based giant, was the first to dip a toe into the Canadian pond. It’s now the sixth-largest player in the business, with assets under management of almost $34 billion. 

AIM Funds, thanks to its acquisition of Trimark a couple of years back, has vaulted into the number three spot, at over $37 billion.

Scudder falls flat
But one U.S. invader fell flat on its face and has now officially departed the scene.

Both Investors Group and Mackenzie Financial recently announced they are terminating their management agreements with the Zurich Scudder organization. The fate of all the funds run by them is up in the air.

One thing is sure. The Scudder brand will disappear from the name of any that survive.

It’s a classic tail-between-the-legs ending for a company that arrived in Canada with the promise of a whole new deal for investors.

Canadians ignored funds
In the States, Scudder earned its reputation as a low-cost, high-performance operation. The funds we sold on a no-load basis. MERs were kept very low.

At a time when more Canadians were complaining about the rising expense of mutual funds, Scudder set out to appeal to our cost-consciousness by implementing the same formula here. The strategy was to by-pass the middle man (the advisor) and sell directly to the consumer. This same approach has worked very successfully for Altamira.

However, in Scudder’s case it bombed. Canadians ignored the company, even though the funds turned in decent returns in the early years. Many attempts were made to turn things around and obtain some momentum, but nothing worked.

Next page: Mackenzie made changes

Mackenzie made changes
In the end, Scudder decided to withdraw from the marketing end entirely, although they retained managerial control over their funds. Those funds eventually ended up in the hands of Investors Group. They were passed over to Mackenzie Financial when IG bought control of that company.

Mackenzie has been trying to decide what to do with them for the better part of two years. The original no-load (now called “Classic”) series, with its low MERs, was closed to new investors.

An “Advisor” series was launched, with higher MERs and load charges, but it never caught on. The Scudder Canadian Equity Fund in this series has assets of barely over $2 million, way below the level that would make it economic to operate.

Finally, in April, Mackenzie announced that it was giving Zurich Scudder a 90-day notice of termination.

Investors Group made a similar announcement for its Scudder-branded funds at about the same time. What neither company revealed is what will happen next.

Mackenzie’s executive vice-president, marketing, David Feather, stated in a press release that unitholders and advisors would be contacted about the funds “in the coming weeks”.

Funds merge, change
Well, here’s the inside story. Mackenzie will announce soon that they are going to merge eight of the Scudder Advisor funds into other existing funds.

Only three funds will survive, with new names and new managers. They are:

• Scudder Canadian Short-Term Bond Fund
  There is no other short-term bond fund in the Mackenzie stable, so this fits the bill nicely. Look for it to be renamed as the Mackenzie Canadian Short-Term Bond Fund.

• Scudder Greater Europe Fund
   Mackenzie wants to expand its options in the European market, where it sees growth potential.

• Scudder U.S. Growth and Income Fund
  U.S. balanced funds are a rare breed in Canada, but many investors are attracted to the concept. This one fits the bill.

In addition, Feather says that he plans to broaden the range of options available to current holders of the original Scudder Classic units. He wants to provide more flexibility for transferring assets, but says nothing will be done that would increase the low fees these unitholders currently enjoy.

Adapted from the May 2002 edition of Mutual Funds Update.