* Says too many asset managers follow the crowd, play to niche markets
* Managing client expectations key to long-term success
* Sees opportunities in corporate bonds, emerging markets, Europe
TORONTO, Jan 30 (Reuters) - Comparing wealth managers who exploit niche markets to tobacco companies who make "light" cigarettes, the head of investment at Alberta's largest bank said it is time the industry started leading investors rather than feeding them trendy products.
"Far too many firms are cranking out whatever advisers and clients are asking for at the moment, and we've ended up with thousands and thousands of funds, most of them are quite mediocre," said Sheldon Dyck, president of ATB Investor Services, the wealth management arm of ATB Financial, Alberta's state-owned bank.
"To me that's like making light cigarettes - you're doing it because it will sell and you're filling a market niche. But are you actually doing the right thing for people who are counting on you to be a professional and give them advice and steward their money properly?"
The rant against fellow Canadian wealth managers who churn out investment products in response to consumer demand may not win Dyck a lot of friends in the industry, but he says he does not care. He believes he has a fiduciary duty to the bank's 635,000 customers and growing the C$8 billion ($8 billion) in assets under management is the priority.
The refusal to follow industry trends cost ATB some clients when Dyck did not buy into the run-up in income trusts a decade ago. But he said the long-term performance of ATB's Compass Portfolio Series, debuted 10 years ago, proved that customers were wrong, and the attrition was "temporary."
Dyck, whose bank is big enough in the resource-rich province of Alberta to go head-to-head with Canada's big five national banks in terms of branches and investment services, said communication with clients and advisers is key.
"A big part of having people stick with the strategy is to give them realistic expectations - not about the 10-year average, but what the individual year is going to feel like."
Being on the wrong side of groupthink in the last decade meant Dyck was pushing U.S. equities three years ago, when no one wanted to hear about the stock market ever again, and selling the upside of the housing correction now - through investment in securitized commercial mortgages - just as investors are bailing out amid falling demand.
Dyck said ATB can't predict the future of investments any better than any other wealth manager, particularly on timing. He looks for oversold or undervalued assets, and knows it is time to get out when the crowd arrives.
Looking ahead, he expects to invest in corporate bonds rather than government bonds, in emerging markets beyond the BRIC countries of Brazil, Russia, India and China, and in parts of Europe that have been unfairly tarred by the region's debt crisis. He also is "looking very hard" at securitized commercial mortgages for yield enhancement that cannot be had in government bonds.
Dyck said ATB benefits from its client base in a province that has boomed in recent years, full of new money, new wealth, and an educated and mobile workforce that may be more prepared than the average investor to follow an unpopular path.
Not being publicly traded also gives the bank a flexibility its big Toronto-based competitors do not have, he said.
"Lots of people see the trends that we see, but the question is whether they have the conviction to act upon it as if they were investing their own money, rather than having a popularity contest and worrying what next quarter's results will be."