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Redemptions are slowing; can AIM rebound?

Is the worst over for AIM Funds Management Inc.?

The fund industry is gearing up for the all-important registered retirement savings plan sales season and it's safe to say there is some nail-biting at the firm widely known as AIM Trimark.

The Toronto-based company, one of Canada's fastest-growing fund managers only three years ago, has taken a beating of late. Since January, a stunning $3.2-billion in fund business has left the company.

Oil and gas, the sector responsible for about 60 per cent of the Toronto Stock Exchange's gains in 2005, is largely responsible for AIM Trimark's troubles. The Trimark family of funds holds close to 90 per cent of the firm's investment dollars and shuns commodities, including the volatile energy sector. A handful of AIM Trimark's largest products, including the $4.6-billion Trimark Income Growth Fund, rode through the 2005 oil boom with little or no energy exposure.

The firm's stubborn stance has its supporters. "You have to respect a money management company that will buck the popular trend of being in the hot commodity if it goes against their stated objectives," said Chris Reynolds, president of Investment Planning Counsel Inc., a Mississauga-based wealth management firm with about 500 financial advisers.

Nevertheless, AIM Trimark was soundly punished when it came to performance and sales. Trimark Income Growth returned a meagre 4.1 per cent in 2005. In contrast, the S&P/TSX composite index was up a stunning 23 per cent. The fund has seen more than $1-billion in redemptions in 2006. So far this year, Trimark Income Growth returns have risen about 11 per cent, compared with the S&P/TSX gain of more than 14 per cent.

Oil's volatile year is fuelling some optimism. Light sweet crude soared in July and tumbled last month, and now sits near $63 (U.S.) a barrel, close to where it started in January. The 76-member S&P/TSX composite index energy sector is up a meagre 5 per cent year-to-date. Six sectors --a corporate mix that includes many Trimark-favoured blue-chip financials and consumer discretionary firms -- are trumping energy.

Top Trimark picks in 2006 include Shaw Communications Inc., Telus Corp., CHUM Ltd. and Vincor International Inc., said Patrick Farmer, AIM Trimark's chief investment officer.

Meanwhile, there's increasing sentiment that Canadian investors are at last heeding the call to invest internationally. November's trust sector correction has seen new investment dollars flow to a number of global equity specialists, including AGF Management Ltd., Fidelity Investments Canada Ltd. and Brandes Investment Partners & Co. It's expected that AIM Funds will be among the beneficiaries. The firm manages some of the country's best long-term global equity funds, including the $2.5-billion (Canadian) Trimark Fund and the $1.4-billion Trimark Global Endeavour Fund.

Most important, redemptions are slowing. In November, the company reported $117-million in net redemptions, the firm's 16th consecutive month of customer losses. But losses have been shrinking since August when $272-million left the company.

This year is "a very different performance snapshot, and I think it is extremely encouraging," Mr. Farmer said. "If I was going to guess what's going to happen to flows, I would suggest that 2007 and 2008 are going to be very good for us."

Some company watchers are less optimistic. Yes, redemptions are falling -- but so are gross sales, a broader measure of fund demand, reports Peter Loach, fund analyst at BMO Nesbitt Burns Inc. For the first 10 months of 2006, the company reported gross fund sales of about $3.6-billion, down from about $6.1-billion reported for the same period in 2005.

"Managing a period of redemptions is doable, but if you have a gross sales problem, that's a much steeper task to try to tackle," Mr. Loach said.

And sadly, improved fund performance may not be enough to win back fickle investors. In its recent road shows, AIM Trimark is failing to generate the hard-to-define "buzz" among advisers that some of its rivals enjoy, a list that includes AGF and Toronto-based CI Financial Income Fund, said one industry observer. A number of top wholesalers, key salespeople who maintain important adviser relationships, have left the firm over the past 18 months.

"AIM Trimark still has arguably the strongest adviser brand," the source said. Nevertheless, "their image has slipped significantly in the last 18 months and they are no longer the clear front runner that they were."

© 2007 The Globe and Mail. All rights reserved.

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