Lower fund fees may hurt Canada's asset managers: NBF

Thu Feb 9, 2012 5:54am EST
 
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(Reuters) - Canadian wealth managers' profitability will be weighed down by lower fund fees as investors increasingly avoid risks, National Bank Financial said as it began coverage of AGF Management Ltd AGFb.TO with an "underperform" rating.

The brokerage, which initiated coverage of CI Financial Corp CIX.TO with "sector perform," said growth at Canada's asset managers will also be hurt by rising competition from banks and alternative products such as exchange-traded funds.

Analysts have increasingly turned cautious on Canada's financial industry, expecting an end to the double-digit profit growth that has made the sector a safe haven for investors spooked by rocky markets in the United States and Europe.

"AGF is the most exposed within the peer group to global equity markets, whose weakness has been partly responsible for four straight years of net redemptions," NBF analyst Shubha Khan wrote in a note to clients.

Earlier this year, Toronto-based AGF announced a 29 percent fall in its fourth-quarter profits, hurt mainly by market volatility caused by the European debt crisis.

On the other hand, NBF started coverage of IGM Financial IGM.TO, one of Canada's largest mutual fund companies, with an "outperform" rating, saying the firm is well-positioned to continue growing assets under management on the strength of its proprietary distribution platform and broad selection of funds.

IGM is due to announce its fourth-quarter results on February 10.

NBF set a share-price target of C$51 on IGM, C$23 on CI Financial and C$15.50 on AGF.

Shares of IGM closed at C$45.45 on Wednesday on the Toronto Stock Exchange, while those of CI Financial closed at C$21.94 and AGF at C$15.88.

(Reporting by Arnav Das Sharma in Bangalore; Editing by Tenzin Pema and Don Sebastian)