Can AGF Management Ltd. and Fidelity Investments Canada Ltd. do it again in 2007?
The rival Toronto mutual fund companies ended record strings of monthly redemptions last year and are confident they can build on current momentum.
Observers are optimistic about the future -- with a few caveats.
The architect of AGF's success is Randy Ambrosie, the former football star who joined the fund company in 2004. At the time, AGF was a formidable mess -- the firm was ignored by financial advisers, fund performance was mediocre and assets under management had been sinking for three years.
The president of AGF Funds Inc. has spent much of the past two years meeting hundreds of financial advisers, trying to figure out how to win back their favour. The fruit of his labours was Elements, a portfolio of funds with a twist. Launched in November, 2005, the so-called "wrap" comes with a performance-linked free rebate.
The product struck a chord with investors and advisers, and has attracted more than $1-billion in sales.
"Elements was a response to advisers asking us to build something special that would help them with their clients. And we took the view that . . . if we build it, they will come," Mr. Ambrosie said.
It is a cornerstone of the firm's success. In the first 11 months of this year, AGF's net sales reached $569.5-million; during the same period in 2005, the company was about $1.5-billion in the hole.
But Elements has also attracted a wave of criticism, much of it focused on the wrap's fee structure. Advisers that sell Elements receive a 125-basis-point annual trailer or 1.25-per-cent fee based on the client's assets invested. (A basis point is 1/100th of a percentage point.)
The 125-point trailer is not unheard of; bank wraps, for example, have comparable compensation. But banks can share costs across a broader platform while the bulk of stand-alone fund companies offer a 100-basis-point trailer to advisers.
Elements is a smart and competitive offering in an increasingly crowded field and "incremental compensation is an advantage," said Joe Canavan, chairman and chief executive officer of Assante Wealth Management Ltd.
Some critics question the financial merits of Elements. Once commissions, costs and the product's guarantee are accounted for, AGF's margins are tiny. Raynor Burke, head of fund research at National Bank Financial Inc., described Elements as a "short-term fix" to quickly stem redemptions.
Mr. Ambrosie insists AGF is not a "one-trick pony." Elements is a means to renew relationships with advisers, he said. Recent sales data indicate AGF's success rests in more than a single product. In November, net sales totalled $224-million; Elements accounted for $58-million in sales, about 25 per cent of the tally.
AGF is making the most of a shift in investor sentiment toward global markets. International equity fund sales continue to escalate, especially the growing roster of funds managed by John Arnold, the chief investment officer of Ireland's AGF International Advisors Co. Ltd.
Like AGF, a new executive has overseen the turnaround at Fidelity, the Canadian arm of Boston fund giant Fidelity Investments. Appointed in February, 2005, Robert Strickland took over a firm capping its third consecutive year of redemptions.
A long list of measures to remedy the situation has been taken under his tenure. For the first time in seven years, Fidelity's investment team got back on the road and has done three meet-and-greet tours with advisers over the past year. Pop icon Paul McCartney kicked off a series of TV spots last fall, and newspaper ads and billboards continue to tout the brand.
Fidelity has also been busy on the product side. Three income funds were introduced in May, 2005, followed by five new global funds last spring. Fidelity ClearPath Retirement Portfolios, a life cycle wrap offered to retail clients a year ago, has attracted $500-million in new business.
In the first 11 months of this year, Fidelity's net sales reached $430.7-million; during the same period in 2005, the company reported redemptions of $1.2-billion.
"Our improvement has been pretty steady all year long," Mr. Strickland said. "You do well when you are firing on all cylinders."
Unlike AGF's rapid shift in fortunes, Fidelity's progress has been slow and steady, said Peter Loach, fund analyst at BMO Nesbitt Burns.
"AGF is making all the noise and appears to have more momentum going into 2007. But when you consider the compensation structure of Elements versus the broad-based growth at Fidelity, in the long term, it may be a different story," Mr. Loach said.
The Fidelity turnaround hit a speed bump this month. Alan Radlo, a fund manager widely regarded as the face of Fidelity in Canada, unexpectedly left the firm on Dec. 18. The Boston-based executive oversaw about 25 per cent of the fund company's $37.5-billion in retail assets under management, including the $4-billion Fidelity NorthStar Fund, one of the few funds that was attracting new money during the company's long period of redemptions.
There's much agreement that Fidelity's investment team has great depth and will soldier on without Mr. Radlo. Nevertheless, the company has lost a marquee player.
"Alan Radlo's departure is a significant loss," Peter Shippen, a fund analyst at TD Waterhouse Group Inc. wrote in a Dec. 19 note. He advises investors to consider alternatives to the NorthStar fund, review holdings in the $2.2-billion Fidelity Canadian Growth Company Fund and hang on to a single fund, the $6.6-billion Fidelity Canadian Asset Allocation Fund.
© 2007 The Globe and Mail. All rights reserved.
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