EUR 850.00 For Business Accounts Only

Morningstar | Fee and Margin Compression Impact Leave AGF Management Poorly Positioned for Fiscal 2019

We believe AGF Management's struggles are far from over. Sustained bouts of investment underperformance and increased competition have weakened the company's competitive positioning in the Canadian market. The firm also relies more heavily on third-party distributors than its peers, with the big six banks and insurance companies (which handle the bulk of fund distribution in Canada) placing even more emphasis on expanding their fund manufacturing operations. While the regulatory headwinds seem to have eased with the Canadian regulators deciding not to ban embedded commissions, we still expect the growth of fee-based accounts, and increased transparency around fees and performance, to put greater pressure on active managers with higher-than-average fees and below-average performance. When AGF Management cut its dividend in fiscal 2015, we had hoped that the capital the firm was freeing up and investing back in its asset-management operations would lead to better returns for investors. With the firm increasing its commitment to existing talent, hiring new talent, merging several funds, streamlining product lineups, adopting more competitive pricing structures, and investing in alternatives and ETF platforms, we had expected to see results sooner than we have. While the company's retail fund operations have started to show better performance of late, results have been inconsistent, and the firm really needs to generate sustained levels of investment outperformance to see a prolonged rebound in flows.Given the weaker competitive positioning of its funds, though, we expect it will take several years before these efforts start to make a meaningful contribution to AGF Management's top and bottom lines. In the meantime, we believe the firm will continue to dedicate capital (when available) to share repurchases, buying it the additional time needed to improve its investment management capabilities and its client service and distribution relationships.