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Jovian draws more firms into its orbit

It may not be big, but this firm's fleet of wealth managers is growing, KEITH DAMSELL reports

MUTUAL FUNDS REPORTER

Jovian Capital Corp. is hoping the whole is greater than the sum of the parts.

The Bay Street upstart has been gobbling up small financial services companies at a furious pace and now has a hodgepodge of more than a dozen wealth and asset managers under its umbrella. In its most recent deal, Jovian agreed on Aug. 15 to acquire control of fund manager Horizons Fund Inc., a hedge fund manager with about $150-million in assets under management.

While Jovian is a little-known holding company, Philip Armstrong, the company's 55-year-old president and chief executive officer, is a well-known veteran of the fund business. As head of Altamira Investment Services Inc. in the 1990s, he was the winning coach that backed star player Frank Mersch.

Mr. Armstrong left Altamira early in 2001, and two years later he took Jovian public after its merger with Rice Capital Management Plus Inc., a mid-market player with a branch network in Manitoba and Saskatchewan. A string of deals followed, bringing firms such as T. E. Financial Consultants Ltd. and investment adviser Leon Frazer & Associates Inc. into the Jovian tent. As of March 31, the client assets under Jovian's management and administration totalled $8.1-billion.

"We're trying to buy companies with strong brands and strong management, and allow management to continue to run the company," said Mr. Armstrong, adding that costs will be kept in check by back-office strategies like shared accounting and legal operations, he said.

Despite Mr. Armstrong's stellar reputation, several in the industry are skeptical. Jovian's plan of tying together free-standing silos that lack common economies of scale in an intensely competitive industry is "a pipe dream," said one fund executive.

Maybe so, but the Jovian CEO is intent on realizing that dream -- a coast-to-coast, client-focused blue-chip firm.

"Our long-term goal really is to become a mid-size player in the financial services area that is a dividend-paying company," he said.

A batch of hot commodities

The trickle of commodity-linked products is now a steady stream.

National Bank of Canada and OpenSky Capital are on the road this month, touting rival notes tied to the volatile price of energy and base metals.

The NBC Energy and Base Metals Note is an eight-year note linked to a basket of four commodities. The principal investment is fully protected plus a 5-per-cent "coupon" or income payment guaranteed after the first year.

Five commodities are behind Open Sky's Commodity Linked Note, its fourth commodity-driven product. There's no coupon but the sales commission is lower when compared to National Bank: 4 per cent versus 4.75 per cent. The principal on the six-year note is guaranteed by Groupe Société Générale of France.

National and Open Sky say retail interest is hot and heavy, no doubt thanks to the surging oil market. The two new products follow commodity offerings earlier this year from Sentry Select Capital Corp. and VenGrowth Asset Management Inc. Industry sources report more commodity products are on the way.

A word of caution. It's important for investors to take a long hard look at their portfolio before bulking up on the sector. Energy stocks now make up a heady 25 per cent of the S&P/TSX Composite Index so chances are most investors have substantial exposure via their favourite Canadian equity fund.

AGF funds make their debut

AGF Management Ltd. rolled out two new funds this month aimed at stemming mutual-fund redemptions.

The AGF Dividend Income Fund is new in name only; it's the former ING Canadian Dividend Income Fund. This month, AGF acquired $276-million in fund assets managed by the Canadian unit of Dutch financial giant ING Groep NV. The two-year-old fund has a stellar record, reporting an annualized average return of 33 per cent since inception. Not surprisingly, the ING team will continue to manage the $156-million fund.

The AGF U.S. Risk-Managed Class Fund, meanwhile, will be sub-advised by mathematical investor Intech, a subsidiary of Denver's Janus Capital Group Inc. AGF's U.S. investment funds need a boost. The mediocre group has by and large trailed the performance of its peers. The fund's creation is also a nod to the success of James O'Shaughnessy. The fund manager's mathematical model had made his four funds a huge hit for the Royal Bank of Canada.

Unfortunately, there's some skepticism the new AGF funds will generate much buzz.

First, there's concern the ING-managed dividend fund will cannibalize assets from AGF's own roster, most notably the $2.8-billion AGF Canadian Large Cap Dividend Fund. Analysts fear there's little to differentiate the two dividend funds. Four equities are found in the top ten holdings of both: Telus Corp., Manulife Financial Corp., Bank of Nova Scotia and Toronto-Dominion Bank.

Secondly, Intech's methodology has yet to set the investment world on fire. As of June 30, the Intech Risk-Managed Large Cap Growth Composite Fund, the firm's benchmark $10-billion (U.S.) fund, has trailed the 12-month returns of the S&P 500 Index by a modest 4 per cent in a five-year period.

The plight of AGF has many scratching their heads. Despite making all the right moves -- overhauling the sales team, launching new funds and cutting fees -- retail investment dollars continue to head out the door. In the first seven months of this year, the company reported about $1.4-billion (Canadian) in redemptions. Surprisingly, that's up from about $1.1-billion during the same period in 2004.

kdamsell@globeandmail.ca

© 2007 The Globe and Mail. All rights reserved.

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