Friday, February 15, 2008

buying the manager, not the product

At the market open this morning I doubled my stake in Canadian wealth manager IGM Financial (IGM) at $42.52/share.

IGM shares are currently down about 33% from their 52 week high. The company announced a 10% rise in fourth quarter EPS last night, as well as a strong 6% raise in the dividend, which they've been in the lovely habit of raising twice annually for several years. IGM is currently yielding about 4.5%. Their dividend growth record speaks for itself.

Rough waters may lie ahead for Canadian wealth managers. This article from the Globe and Mail indicates that Canadian Mutual Fund Sales Are Plummeting. Count me in as part of the crowd that does not believe Canadian Mutual Fund Sales are circling the drain long term. As the baby boomers come of age in this country, wealth accumulation for the future will become more and more of a priority. The housing crisis in the U.S. only emphasizes the benefits of diversification. Those that have all of their financial eggs in the real estate basket in Canada should, and will probably look south to find an example of why to not have all of their assets tied up in bricks and mortar.

In my opinion an investment in IGM is an investment in the company's marketing and sales, and in the trust, and apathy of the customer. Most customers want to save and invest but don't want the headache of managing their own money, or researching the most cost effective method to do so. These investors (customers) don't care or know enough about investing to do it themselves. The marketing message is simple, "this is important for your life and good for you, trust your advisor and trust your mutual fund managers to steer you right for the long term." Relationships and percieved need for professional services will always trump competitive products like ETFs, index funds, etc. In the meantime, IGM will reap the ever-growing fees which seem like peanuts to the customer.


Four Pillars said...

I didn't realize the yield was so high - this might a perfect stock for my leveraged portfolio.

Thanks for the write up.


pitz said...

"Bank Valuations Best in Decades or Ever? The bank dividend yields relative to bonds and equities (Exhibits 4 and 5) are at unheard of levels at 5.2 and 2.0 standard deviations above their historical means. Bank P/E multiples have retraced to 10.9x trailing similar to 2001/2002 bottom."

-- Scotia Capital, February 13, 2008

pitz said...

Oh yeah, MFC and SLF still were able to grow earnings this year, which makes that 10X multiple on the banks look even more compelling.

Mortgage Claims said...

What an excellent topic?
Thanks for the write up.

porpoise said...

What do you think about SFI?

Sami said...

What about PWF which owns almost 68% of IGM?

It also has a big stake in great west life and a similar european financial instituations. It yields 3.5% and sell at a discount of about 19% to the sum of its inividual parts, IGM and GWO.