The mutual fund provider is facing new fee disclosure rules. But its sound relationships with clients should protect assets under management and support its high dividend.
IGM FINANCIAL INC. (Toronto symbol IGM; www.igmfinancial.com) is Canada’s largest independent mutual fund provider. The company has two main businesses: Investors Group offers mutual funds and portfolio management services through 5,300 affiliated advisors; Mackenzie Financial sells funds through independent brokers.
New rules will soon require investment firms to disclose more details on fees. It’s possible these changes could hurt mutual fund sales. However, Investors Group forms close relationships with its clients, which should help it adapt to the new rules.
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In addition, market research firm Pollara found that 87% of investors are confident mutual funds will meet their financial goals. It also found that only 34% of investors had similar confidence in ETFs. That’s likely due to a lack of knowledge about ETF products.
IGM’s assets under management were $134.7 billion by the end of the second quarter, ended June 30, 2016. That’s down 1.0% from a year earlier.
The company’s fee income rises and falls with the value of the securities it manages. As a result, IGM’s revenue in the second quarter of 2016 fell 2.5%, to $744.3 million from $763.2 million. Earnings declined 12.7%, to $175.1 million from $200.6 million; earnings per share fell 10.0%, to $0.72 from $0.80, on fewer shares outstanding.
IGM will probably earn $2.95 a share in 2016. The stock trades at 12.2 times that forecast. The $2.25 dividend seems secure, and yields 6.3%.
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I would be concerned about the rise of ETFs and its impact on companies like I G M that is ones that sell and push mutual funds.