AIC hits the road | Advisor.ca

Jonathan Wellum is only on the fifth stop of a two-week, 11-city road show selling AIC’s two newest sub-advisors, yet the fund company’s chief investment officer’s voice was already hoarse as he addressed a small group of financial planners recently in downtown Toronto.

It’s been a long trek for Wellum, but an even longer few years for AIC. In 2004 the company flipped between being the 12th or 13th largest fund company with assets under management of about $12.5 billion; now it tenuously holds on to 15th spot with assets below $9 billion, according to the latest IFIC numbers. On the sales side, the company has also endured a lengthy streak of net redemptions.

To help lift its fortunes, AIC has bumped up dealer compensation and it’s changed the load redemption schedule in the past month. That followed a February launch of five new ‘Private Portfolio Counsel’ pools targeting the sophisticated investor. To make the new funds attractive, AIC recruited three U.S.-based value managers as sub-advisors: Ariel Capital Management, Loomis, Sayles & Co. and Third Avenue Management, which has worked with AIC for some time on its Global Advantage Fund.

AIC didn’t stop there. As an added punch it also lowered the minimum initial investment to $25,000 for these products — in totality, not for each individual fund — to “enable more Canadian investors’ access to the investment expertise of AIC Private Portfolio Counsel and these leading U.S.-based value investing managers.”

It’s something of a mixed message. These products are aimed at investors who require something more than a basic fund but aren’t ready for separately managed account — not quote the polo-playing set shown on AIC’s marketing materials.

Still, launching new products has been an effective strategy. AIC’s Global Focus Fund, for instance, continues to grow. In one year, it’s attracted about $100 million in assets and has a year-to-date return of a little more than 8%.

Only Ariel and Loomis were present at a breakfast session last week in Toronto. These two firms will act as sub-advisors to two of AICs new funds: AIC Private Portfolio Counsel U.S. Small to Mid Cap Pool and AIC Private Portfolio Counsel Global Fixed Income Pool.

Three new funds have also been created within the pools group — AIC PPC Balanced Income Portfolio Pool, AIC PPC Balanced Growth Portfolio Pool and AIC PPC Core Growth Portfolio Pool — which are based on a fund-of-funds’ structure. The new AIC PPC Core Growth Portfolio Pool will hold 35% of AIC Global Focused Fund, which is sub-advised by New York-based Third Avenue Management.

Say what you will about AIC, but no-one can argue it has wavered from its ubiquitous ‘buy, hold and prosper’ tagline. (Indeed, at times AIC may have followed it too closely, as a recent article from Morningstar Canada pointed out). The new sub-advisors only reinforce that since they too subscribe to the buy and hold mantra.

Ariel logo says it all: a turtle holding out a trophy. The slow but steady approach seems to have worked well for the firm. According to documents provided by AIC, while the Ariel Fund returned less than 1% in one year versus a gain of 4.9% on the S&P 500, it beat the index’s 14.39% return with a gain of 16.38% over the last three years. Ten years out, the fund has produced a return of 14.39%, versus the S&P’s gain of 9.1%.

Research is key, says Jason Tyler, senior vice-president for portfolio management at Ariel. It’s so important that the firm looks to ex-CIA agents to provide an independent valuation before they make their buy decision on a company. That helps explain why the company holds only 85 companies despite managing assets of about $19.4 million US. And it adds only about 10 new stocks to its holding a year.

“We are trying to find companies that don’t have the high expectations that other firms do,” he says. “A big component of value investing is to find companies where expectations aren’t that the company is going to go to the moon — find companies where the market isn’t expected to do much, but the company can perform much better.”

Boiled down, the Ariel focuses on the small to medium sized firms with a forward price-to-earnings growth of 16 and a trailing P/E of 19.

Loomis, Sayles & Company, a fixed income shop, is also patient with its investments.

It’s emphasis is on global markets, and not just because the Canadian market is expensive right now. “You can get better returns by rotating into different economies around the world, depending upon their interest rate cycle,” says Scott Service, a credit analyst on Loomis’ global fixed income team.

The company commands about $75 billion US in assets under management and commits about $30 million US a year to research. The product that Loomis is working with AIC holds about 25% corporate bonds, a maximum of 25% high-yield bonds and bonds with a rating of at least A- by the S&P and Fitch or an A3 by Moody’s. “If we don’t see a huge opportunities in the market we are not going to stretch to take risk because that’s where you get into trouble,” says Service.

Filed by Mark Brown, Advisor.ca, mark.brown@advisor.rogers.com

(05/04/06)

Mark Brown

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