Morningstar | Market Gains Offset Outflows and Fee Pressures in IGM's 1Q; No Change to CAD 35 FVE
There was little in narrow-moat IGM Financial's first-quarter results that would alter our long-term view of the firm. We've left our CAD 35 fair value estimate in place. IGM closed out March with CAD 160.5 billion in managed assets, up 7.6% sequentially and 3.0% year over year. Investors Group, which accounted for 56% of the firm's assets under management at the end of the first quarter, reported a 7.5% sequential and 2.6% year-over-year increase in its managed assets, as market gains offset its fourth consecutive quarter of outflows. Mackenzie Investments, which accounted for 41% of AUM, recorded a 7.9% sequential and 3.8% year-over-year increase in its managed assets, with the firm continuing to generate positive flows from its mutual fund and exchange-traded funds operations. Investment Planning Counsel, which is IGM's smallest segment, reported a 5.9% sequential increase and a 0.5% year-over-year decrease in its managed assets.While average AUM was down just 0.6% year over year during the March quarter, management fee income declined 2.0% from the prior-year period, due primarily to ongoing fee compression. Total revenue, which includes administration and distribution fees and net investment income, was down 2.5% during the period. While this result was lower than our full-year forecast for flattish revenue, the firm does face easier comparables in the back half of the year.
IGM continues to have a difficult time keeping expenses from growing faster than revenue, with the first-quarter adjusted pretax operating margin of 27.2% down 250 basis points from the prior-year period. While this was below our longer-term forecast for pretax margins of around 31% on average, the firm is expected to have higher noncommission expenses in the near term associated with spending on technology initiatives and the continuation of increased marketing behind the relaunch of the Investors Group wealth management brand.
IGM Financial is engaged in the provision of financial services. Co.'s Investors Group segment provides financial and investment planning services to Canadians through its network of consultants across the country. Co.'s Mackenzie segment is engaged in the provision of investment advice and related services offered through investment applications, distributed through channels focused on independent financial advice. Co.'s Corporate and Other segment includes net investment income earned on unallocated investments and other income, operating results for Investment Planning Counsel as well as inter-segment eliminations. As of Dec 31 2010, Co. had total assets of C$8,892,563.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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