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Fund company stocks shine when stock markets rally. And AGF Management Ltd. should benefit because it has a huge chunk of its fund assets in equities - nearly 80 per cent, according to the latest public data.

But the fund giant has also been suffering from net redemptions for the past couple of years, including $103-million in outflows in December.

It doesn't help that manager Christine Hughes, who ran the $2.3-billion AGF Canadian Balanced Fund, left the firm last week for personal reasons just as the key RRSP selling season kicked into high gear.

With a turnaround in net sales elusive, an improving bottom line at AGF will rely on cost-cutting and rising fee revenue stemming from market appreciation in its funds.

When AGF reports fourth-quarter results Wednesday, TD Newcrest analyst Doug Young expects earnings of 31 cents a share - slightly higher than consensus of 29 cents. (His forecast includes AGF's assets under management at the end of 2009, while his peers may not have done so yet.) The latest financial results will "look impressive" compared with a year ago, when AGF reported a loss of 21 cents a share due to writedowns and provisions for credit losses at its trust unit, Mr. Young said in a report. "Near term, we will be keeping an eye on credit-loss provisioning, arrears and loan impairments and management's position towards starting to write higher-risk [no-margin call and home-equity line of credit] loans again," said the analyst, who rates AGF a "hold" with a one-year target of $18 a share.

While encouraged by trends such as AGF's leverage to improving market conditions, Mr. Young sees no signs yet of net inflows. Longer term, he wrote, "we believe that AGF is at a competitive disadvantage" because it does not own a financial planning arm through which funds can be sold.

© 2007 The Globe and Mail. All rights reserved.

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