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Weak returns! Flagging sales! AIM's been on this road before

Its value-style approach has led to minor exposure in a soaring energy sector, KEITH DAMSELL says. But CEO Philip Taylor urges patience


Philip Taylor, the low-key head of AIM Funds Management Inc., is in an unusual position these days: Trying to explain what's behind weak returns.

"Our current investment management is struggling a little bit," said the president and chief executive officer of the company, best known in Canada for its Trimark and AIM-branded funds. "We don't like to be in this position, clearly. But we can take some comfort that we are not losing clients' money."

For the balance of this decade, Trimark's value team could do no wrong. Trimark was at the forefront of the shift to value-style investing, buying out-of-favour stocks and riding them to record highs.

Portfolio managers Ian Hardacre and Geoff MacDonald developed a strong following among advisers and investors. Trimark funds swelled in size and now make up about 85 per cent of the company's $45.1-billion in assets under management, up from about 71 per cent in 2000.

But Canada's energy boom has put an end to sales growth. Fast-moving commodity stocks are out of bounds for Trimark's value team and the bulk of marquee funds have very little weighting in the oil patch. For example, Mr. Hardacre's Trimark Canadian Fund has a tiny 5-per-cent energy weighting; the $1.3-billion fund's one-, three- and five-year returns lag its peer group and the S&P/TSX composite index. Meanwhile, a strong Canadian dollar has hurt returns of foreign equity flagship funds, the Trimark Fund and the Trimark Select Growth Fund.

New dollars coming in the fund company's door have slowed dramatically while the number of customers leaving has remained constant -- the result is net redemptions since last August.

AIM Funds has joined the ranks of troubled AIC Ltd. and Altamira Investment Services Inc. And there's no immediate turnaround in sight.

March will likely see more redemptions. A subtle shift to growth-style investing is under way but momentum-flavoured AIM funds have yet to benefit.

The company's performance has divided the financial advice community. John DiNovo, a Toronto adviser, said company management is struggling to preserve assets rather than expand the firm.

"It's a siege mentality: lie low and our time will come," he said.

In contrast, adviser Michael Morrow of Thunder Bay focuses on the company's long-term returns. "People who are making redemptions are making a mistake," he said. The media-shy Mr. Taylor is preaching patience. The firm has been here before. In the late nineties, the Trimark brand fell from grace when it shunned the tech market, only to bounce back smartly in 2001.

"We will not sell out our soul for a winning season," he said. "The worst thing we could do is change horses in mid-stream. Human nature is human nature and when people are making money on the energy side, it's tough to make an argument about long-term returns."

Fidelity targets foreign equity

Fidelity Investments Canada Ltd. is expanding its foreign equity offering, adding to the flurry of new global offerings that have hit the shelves this past year.

According to a March 8 preliminary prospectus, the Fidelity China Fund, Fidelity International Disciplined Equity Fund, Fidelity International Value Fund and Fidelity Global Real Estate Fund will hit the market this spring.

In February last year, the federal government scrapped the 30-per-cent foreign content ownership limit on registered retirement savings plans and pension plans. The financial services industry has responded with a staggering array of foreign offerings. Over the past year, 328 U.S. and global products have been launched, a list that includes mutual funds and alternate fund classes, segregated funds, wraps and fund portfolios, reports.

But investors have yet to embrace foreign markets. Of the 224 new products reporting sales, average assets under management are a dismal $7.1-million.

Sarbit to unveil fund's holdings

Larry Sarbit will reveal all this week.

The head of Sarbit Asset Management Inc. will give financial advisers their first look at stocks held in the Sarbit U.S. Equity Trust Fund on March 22. To date, Mr. Sarbit, the former star fund manager with AIC Ltd. who struck out on his own last year, has kept quiet on holdings in the $25-million fund, launched last September.

Early returns suggest the money manager is on the right track. For the three months ended Feb. 28, the Canadian currency version of the fund is up 3.6 per cent, compared with a group average of about 1 per cent during the same period.

Controversy seems to follow Mr. Sarbit. During his tenure at AIC, the "deep value" manager held about 80 per cent cash in his U.S. funds. The strategy gave Mr. Sarbit full exposure to the strong Canadian dollar; on the downside, he was dubbed AIC's "all in cash" manager.

His new venture, meanwhile, is a victim of bad timing. The meltdown of Portus Alternative Asset Management Inc. and other firms has left many advice companies cautious when it comes to new products. Some have declined to distribute the Sarbit fund. He has taken the rebuff personally, especially the thumbs down from Berkshire Group of Cos., a firm coincidentally owned by his former boss, AIC's Michael Lee-Chin.

Nevertheless, the Sarbit team has some momentum. The fund is now available on more than 60 sales platforms and further distribution deals are in the works. In January, the startup launched a low-load series of the fund and more financing options are coming. "There's a lot coming down the pipe," Mr. Sarbit said.

© 2007 The Globe and Mail. All rights reserved.

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