AGF appoints new managers
Harris capable of filling big shoes
Several weeks ago, I wrote about San Diego-based Brandes Investment Partners L.P. and their decision to step down from managing mutual funds for AGF Funds Inc. to set up a competing firm. AGF immediately launched an extensive search for a management firm capable of filling Brandes' big shoes. This week, the big announcement was made and I must admit that I was pleasantly surprised.
AGF poured a lot of marketing energy into pumping the Brandes name, philosophy, and rock solid style. Marketing power plus great returns resulted in lots of new money invested in AGF's funds. Many times during the past eighteen months, it was the only reason AGF was receiving new money on a net basis, as a firm. So the temptation to grab a big name manager with lots of marketing appeal was huge.
When AGF began its search, it also hinted strongly at the likelihood of appointing more than one manager to the AGF International Value (and its RSP clone) to reduce their "dependence" on any one management firm. However, they didn't get a big name and only one management firm was appointed to lead their flagship global fund.
Harris Associates L.P.
AGF named Harris Associates L.P. of Chicago (no connection to Bank of Montreal's Chicago-based Harris Bank subsidiary) as the new manager on the AGF International Value and its RSP clone. Harris has been in business for about a quarter-century, but is not well known in Canada.
They manage money for wealthy individuals and other institutions, like charities, foundations, and pension plans. They also offer their expertise to smaller U.S. investors through a no-load family of mutual funds baring the name Oakmark.
My first impression is that AGF has made a fine selection. Recall that 20/20 Funds Inc. (now AGF) originally found Brandes back in 1994 when it was a relative unknown in the Canadian industry. I think they've done a good job of finding a manager that nicely embodies the value philosophy to which unitholders of the AGF Int'l Value have grown accustomed.
(Recall that a 'value' stock-picking style focuses on buying stocks at bargain basement prices - doing all possible not to overpay.)
While no two firms manage money in identical fashion, the research I've done so far indicates that unitholders who remain with AGF International Value should be well rewarded with a similarly "stingy" value style.
While Harris and Brandes each value stocks using somewhat different methodologies, each tends to hold a fairly concentrated portfolio; each has a deep team of analysts to support portfolio managers; and neither is afraid to follow bad news to find an investment opportunity. That said, there are definite differences, but I'd guess they're not different enough for most people to notice.
I am comforted by the fact that AGF resisted the urge to spread the money too thinly (among two or three managers) or to get a big name with greater marketing value than Harris. Their move indicates a greater concern for doing the best thing for investors rather than pleasing their marketing department. Ironically, choosing a smaller firm may have given them more leverage to include exclusivity and non-competition clauses in the management agreement - which should squash any fears of a repeat of a "Brandes-type bomb" in the future.
In scanning the list of stocks in both manager's portfolios, they're very different - only 1 in common. (That's based on a comparison of Oakmark Global as of September 30, 2001 and AGF International Value as of December 31, 2001.)
However, Harris has indicated a keen sensitivity to taxable investors. And it's worth noting that for more than a year, U.S. mutual funds have been mandated by the SEC to report both pre-tax and after-tax returns. I would expect a fair amount of turnover in the beginning, with a more gradual transition subsequently to better conform to Harris' top picks.
Other manager appointments
Lost in this big announcement were two other appointments. Brandes is also responsible for AGF International Stock (an overseas stock fund) and AGF Emerging Markets Value funds. Interestingly, AGF announced that sub-teams within their own AGF International Advisors would assume responsibility for both funds. While I'm doubtful that they'd be the best choices (of all firms available globally), I think the choices are quite good.
John Arnold and Rory Flynn will take over the AGF International Stock fund. The team has done a great job with AGF European Equity using a value style. Since Europe makes up 70 per cent of all stock markets outside of North America, I'd say this fund is in good hands.
As for Patricia Perez-Coutts' appointment to the Emerging Markets Value fund - it's a good move. Recall that she was the lead manager for Trimark Americas fund, which had a unique mandate to invest in U.S and Latin American mid-cap stocks. So, emerging markets are familiar ground for Ms. Perez-Coutts. She has managed AGF Latin America since October 18, 2001.
Whenever such a fundamental change in money managers takes place, it's sometimes a challenge to evaluate the change and make a call. I'm still doing more research on these recent changes announced by AGF, particularly on Harris Associates. However, I feel quite confident in vsaying that unitholders of all of the affected funds should resist the urge to sell. This is particularly true of those invested on a deferred sales charge (DSC) basis; or those sitting on big unrealized gains on these funds in taxable ac counts.
For loyal Brandes followers, the new firm and funds should be available in a few months.
Dan Hallett, CFA, CFP is the President of Dan Hallett & Associates Inc. in Windsor Ontario. DH&A is registered as Investment Counsel in Ontario and provides independent investment research to financial advisors. He can be reached at firstname.lastname@example.org
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