AGF Management Ltd. Chief Executive Officer Blake Goldring said Canada’s third-largest independent investment manager by market value plans to reverse a 35 percent plunge in assets by doubling business from institutional clients and introducing new products.
“I see our company, five years out, being significantly larger than it is today,” Goldring, 54, said in an interview yesterday in Toronto where the company is based.
AGF climbed 30 percent this year through yesterday, the fifth-best performance among 45 members of the Standard & Poor’s/TSX Financials Index, as the company won institutional business and investors rotated into equities from bonds. That’s a reversal from a 75 percent slump from May 2007 through the end of 2012. The company’s assets under management slid to C$36.4 billion ($35.2 billion) as of Aug. 31 from a pre-recession high of C$55.8 billion in May 2007.
AGF won mandates from Canadian and U.K. institutions that will add C$636 million in assets in the third quarter, the company said in its second-quarter report, declining to name the investors. It managed C$17.5 billion in institutional, sub-advisory and high-net-worth assets, accounting for 48 percent of its business as of Aug. 31.
Institutional business, including pension funds, sovereign wealth funds, endowments and foundations “will continue to grow internationally and of course here in Canada,” Goldring said. “I could see it two to three times bigger in five years’ time.”
AGF shares rose 0.8 percent to C$13.01 at 10:09 a.m. in Toronto today for a market value of C$1.14 billion. AGF has not reported a year-over-year monthly increase in assets since January 2012, according to data on the company’s website and was the worst performing financial stock in Canada in 2012.
With about 85 percent of its holdings in domestic and international equities, AGF is well-positioned to benefit from a potential “Great Rotation” into stocks from fixed-income products as bond yields rise amid a rallying U.S. economy, Goldring said.
The U.S. economy is projected to grow 2.7 percent in 2014 and 3 percent in 2015, higher than the 1.6 percent forecast for 2013, according to the median estimates of economists surveyed by Bloomberg.
“With this rotation and innovative products for our clients, we will do very well,” Goldring said. “We’re moving into the sweet spot for our firm.”
Kash Pashootan, a portfolio manager with First Avenue Advisory of Raymond James Ltd. in Ottawa, holds shares of AGF as an income investment. He manages about C$125 million.
“I like the fact they’re recognizing that the mutual fund industry is changing and they are doing different things, being proactive and not sitting back in the stale mutual fund structure,” Pashootan said by phone Sept. 6.
AGF is considering an alternative strategies product, a first for the company, which it may announce before the end of 2013, Goldring said, declining to give details.
The company on Aug. 19 also introduced the AGF U.S. AlphaSector Class fund in partnership with Wellesley, Mass.- based F-Squared Investments Inc. The product is an example of AGF developing products to meet changing consumer demands, Pashootan said.
The mutual fund invests in exchange-traded funds in the U.S. and seeks to avoid market peaks and valleys, Howard Present, chief executive officer with F-Squared, said in the interview.
AGF struggled with poor fund performance and the departure of high-profile portfolio managers in recent years, said John Aiken, financial services analyst with Barclays Plc.
Patricia Perez-Coutts, an award-winning fund manager who was responsible for AGF’s emerging market strategies for 11 years, left the company with two associates in 2012 to work for Dallas-based Westwood Holdings Group Inc.
Aiken is the only analyst among 11 surveyed by Bloomberg with the equivalent a buy rating on AGF. The firm has seven holds and three sells. Aiken has a 12-month price target of C$12, ahead of the consensus estimate of C$11.18 based on 10 forecasts.
“Their cash position is solid and their dividend is stable and sustainable,” Aiken said in a phone interview in Toronto on Sept. 5. “Even if AGF is able to improve its operations it will likely trade at a premium yield for some time.”
AGF currently pays a quarterly dividend of 27 Canadian cents for an annual yield of 8.4 percent, more than double the 3.8 percent yield of the S&P/TSX Financials Index. Aiken estimates if AGF shares climb to about C$14, the yield would fall to about 7.5 percent.
“We’re not making the argument it’s the best operator in the group, we view it as a value play,” Aiken said. “There’s lots of value in the dividend and it’s quite safe.”
AGF is comfortable with its dividend at current levels, and has repurchased about 9 percent of its stock in the past four quarters, Goldring said.
“We have C$360 million on the balance sheet, we have more than enough money,” he said. “This business doesn’t cost a lot to run. We want to return cash to shareholders. I’m the biggest single non-voting shareholder. It’s important to reward shareholders.”
Goldring Capital Corp., the family holding company, owns 14 percent of AGF’s Class B stock, according to data compiled by Bloomberg.
Andrew Pyle, a fund manager with ScotiaMcLeod Inc. in Peterborough, Ontario who manages about C$210 million, sold his position in AGF more than six months ago.
“Our view on that sector is it’s a place that will come under pressure as more regulations come into the industry,” Pyle said. “More transparency will be a negative. It’s still a sector with some challenges.”
In December, the Canadian Securities Administrators proposed new rules for Canadian mutual fund companies including a cap on adviser commissions and adding a statutory duty that advisers who sell financial products act in the best interest of their clients. The regulations are similar to those introduced in the U.K. and Australia in the past few years.
Goldring, who in February advocated a national mandatory savings program as a way for Canadians to pull back from record personal debt levels, said he supports more transparency for clients.
“As long as there’s a close working relationship with regulators, that nothing is imposed unilaterally, then it will be better for the investing public,” Goldring said. “We believe in making sure clients understand what they’re investing.”
First Avenue’s Pashootan said the regulations, if introduced, will affect all fund providers equally and therefore will not have a “material” impact on the business.
“As long as they can generate the revenues they have been, the dividend will be safe and for an income-seeking client this fits their portfolio,” he said.