Analysts unimpressed with Hughes replacement

The departure of Christine Hughes from AGF Management could spell trouble for the company, as analysts question the company’s choice of a replacement.

Hughes was the popular manager of the AGF Canadian Balanced Fund, which has about $2.2 billion in assets across its various classes.

AGF promptly appointed associate portfolio manager Michael White to the role of lead manager, pointing out that he had worked with Hughes in the past.

“We work very hard to have a solid succession plan behind each of our mandates,” says Martin Hubbes, chief investment officer at AGF. “Mike was and is the intended backup for Christine.”

So far, no replacement has been announced for White as associate manager, but Hubbes says the company plans to fill the vacancy as early as possible.

“As CIO, should there be a departure, I need to make sure that what the clients have bought in terms of style and philosophy is maintained,” he says. He says that Hughes and White’s history of working together “in their formative years” should allay any fears of style drift.

The company has been in touch with “most of our major clients” to reassure them that the fund will be managed in the same way as it had been under Hughes. On the whole, he says these clients have been positive about White as her successor, especially those that have had a chance to meet with him already.

The move has not impressed Dom Rando, vice-president, mutual fund research, portfolio advice and investment research at TD Wealth Management, who points out that White has been working on the fund with Hughes for only nine months, prior to which he had been out of the fund management role for six years.

“Anything less than three years [as portfolio manager] I really don’t care about,” Rando says.

Rando points out that White’s experience as a fund manager was focused on small- and mid-cap stocks, whereas the equity portfolio of AGF Canadian Balanced is large cap.

“We are unenthusiastic on this change and believe Hughes’ departure to be a material and negative event given the experience and skill-set she brought to the management of the AGF Canadian Balanced Fund,” Rando said in a telephone interview.

That skill-set includes Hughes’ knack for tactical asset allocation.

Rando recommends clients consider shifting out of the fund. For those in the middle of a DSC schedule, he suggests switching to the AGF Canadian Large Cap Dividend fund for the equity exposure.

To make up for the loss of fixed income exposure offered by AGF Canadian Balanced, he recommends either TD Canadian Bond Fund or PH&N Total Return Bond Fund.

“This is a pretty big blow to AGF and to that fund in particular,” says Dan Hallett, Director of HighView Financial Group, an Oakville, Ont-based asset management consultant.

Aside from the blow to AGF, Hughes’ departure could deprive Canadian investors of a rare investment style.

“We don’t have a lot of funds that actively manage asset mix, and this was one that did,” Hallett says. “Her style is very bold, making significant changes to the asset mix. That’s just not that common among balanced funds.”

He points out that Hughes had protected assets quite well in the market decline of late 2008/early 2009, but had lagged a little in the recovery. He points out that her management style made the fund much less volatile than her competitors.

While AGF Canadian Balanced was not on Hallett’s “recommended” list, it was on what he calls his “farm team” list — funds that were under review, with an eye toward recommending them. The departure of Hughes means he will be dropping it from this category while assessing the performance of White.

(01/22/10)