IGM FINANCIAL INC. (Toronto symbol IGM; www.igmfinancial.com) is Canada’s largest independent mutual fund company, with $125.8 billion of assets under management. Power Financial owns 58.4% of IGM.
The company has two main divisions. Investors Group sells its mutual funds, along with other services like portfolio management and mortgages, through 4,500 affiliated advisors. Mackenzie Financial sells its funds through independent brokers.
In 2012, Investors Group cut the management fees on most of its funds to better compete with other fund companies. This move seems to be paying off. In the three months ended March 31, 2013, Investors Group’s sales, net of redemptions, jumped 114.4% to $375.6 million from $175.2 million a year earlier.
Mackenzie did not cut its fees. Even so, it sold $254.0 million of funds, net of redemptions, compared to net outflows of $933.0 million a year earlier. But even with these gains, IGM’s overall revenue fell 3.0%, to $652.7 million from $673.1 million. That’s largely because it earned lower interest income on its mortgage loans.
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The company earned $180.5 million, down 9.2% from $198.9 million a year earlier. Earnings per share fell 6.5%, to $0.72 from $0.77, on fewer shares outstanding. IGM spent more on advertising during RRSP season. As well, new accounting rules forced it to change the way it recognizes its pension costs. That increased its pension expenses by $1.6 million in the latest quarter.
Improving stock markets should raise IGM’s assets under administration. That’s good news for IGM, as it earns higher fee income when the value of the mutual funds and other securities it manages rises.
The stock trades at a reasonable 15.4 times the company’s likely 2013 earnings of $3.06 a share. The annual dividend rate of $2.15 yields 4.6%.
In the latest edition of The Successful Investor, we look at the outlook for interest rates and whether they will continue to push investors away from bonds and into higher-yielding funds. We conclude with our clear buy-sell-hold advice on this stock.
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Mutual funds tend to do much better in rising stock markets and suffer heavy redemptions when the market is down. Do you believe companies that rely heavily on mutual fund sales only make good investments when markets are up. Or do you believe they are worth holding through down markets if the dividend yield is attractive? Let us know what you think.
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