Net redemptions take their toll

Six months of net redemptions at AIM Trimark has highlighted advisor and client concerns about current holdings and their wariness of new deposits. As with preceding months, February’s net redemptions of $289 million resulted from both of those factors. Inflows fell by almost 50% compared to February 2005, while total redemptions rose by 14%.

Most redemptions appear to be from Trimark-branded funds which represent 85% of total assets. Unlike AIM-branded funds which are growth and momentum-oriented, most Trimark-branded funds are conservative and value-oriented.

This partially explains the problem. Following the Trimark discipline has meant that the company has neither an energy fund nor a resources fund, two volatile sectors that have produced high returns in other fund families. Further, Trimark managers generally underweight these sectors in other funds.

“That has caused performance of these funds to lag their peer groups,” says Dwayne Dreger, vice-president, corporate affairs at AIM Trimark Investments. The company has no plans to change the discipline. “When we subscribe to a discipline we’re completely unprepared to deviate from that discipline,” he says. “The price you pay for devotion to a discipline is that all disciplines are cyclical.”

While AIM Trimark investment policies clearly will not change, the company might keep advisors onside with improved communications. “They aren’t in a position to promote the funds,” says Roy Vokes, president of Vaughan-based Agora Financial Services. But he says greater communication about the company’s intentions might go part way towards easing advisors’ concerns. Vokes credits AGF Funds’ increased communications with advisors as one reason for its recent climb out of 46 months of net redemptions.

Current market conditions and advisor fiduciary responsibilities raise many questions, dilemmas and solutions that can vary for each client. One such dilemma underscores the difference between honest due diligence and short-term thinking. “Some people may honestly disagree with these managers and honestly, (given their) due diligence and some thought, want out,” says Paul Greene, owner and operator of Paul J. Greene & Company. “But a lot of advisors and a lot of clients are chasing momentum and not doing appropriate levels of due diligence to really understand what’s going on.”

The net redemptions and reduced dollar inflows may also indirectly hamper a fund manager and potential yields, Vokes suggests. “As a manager you may have to compromise your position and redeem when you would prefer not to do so, in order to satisfy the outflows,” he says, adding that the funds’ relative size might prevent such an occurrence.

In making risk-reward decisions, advisors also need to make a judgement call about future yields to be had — or not — from energy and resources investments. Staying in Trimark funds or making new deposits (especially where the client has limited dollars for investing) shields those dollars from the volatility of energy and resources, but removes them from earning potentially better returns.