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AGF makes a prudent decision for its Brandes assets
James Gauthier
June 4, 2002
AGF has finally decided who will be replacing Brandes Investment Partners L.P. as the manager of its International Value, International Stock and Emerging Markets Value portfolios. For those of you that were waiting anxiously for this day before you made the final decision concerning these funds, here's our advice - don't sell.
AGF, with the help of Mercer, has done a fantastic job of selecting replacements for Brandes and two of the new managers were right under their nose. We expect the transitions to be seamless and there should be virtually no style drift between Brandes and the announced managers.
The flagship AGF International Value fund will be managed by Harris Associates L.P. of Chicago (not to be confused with Harris Investment Management, the firm that oversees several of the BMO funds). It was a bit surprising that the assets of this fund were not divided among a few other management firms - a possibility that AGF head Blake Goldring hinted at in past press releases. However, we do expect Harris to be a very capable manager.
Harris is in charge of a fund family available to American investors called the Oakmark Funds. One of the portfolios in the family is Oakmark Global. This is the likely model for AGF International Value. The mandates of the funds are quite similar and we expect the transition to be smooth. The good news for investors is that Oakmark Global has prospered even more than the AGF fund during the recent times of trouble for the market. For instance during 2001 Oakmark Global surged ahead 27% (in $Cdn terms) in 2001 and is up 9% YTD while AGF International Value has posted returns of 1% and -3%, respectively, over the same time periods.
It does appear that AGF learned from some of the mistakes they made in their relationship with Brandes. An exclusivity agreement was signed between the two firms that would preclude Harris from entering the Canadian retail market with their own funds. The lack of an agreement between AGF and Brandes was one of the primary reasons for the termination of the relationship between the firms. Brandes is now working on creating their own family of funds for the Canadian market.
So who is Harris Associates? The firm is a value shop with $24 billion US in assets. Goldring said of Harris that the quality he found most appealing was the firm's enormous room to expand assets.
During the media conference, Harris President and CEO Robert Levy reviewed the company's three primary investment tenets. First, they consider stocks to be an equity investment in a company. Analysts determine the intrinsic value of a stock and they become interested if it trades at a discount of 40% or higher. Second, they like it when business value is growing, and finally, they like a management team that thinks and acts as owners. The typical holding period for a stock is at least three years and once a holding reaches 90-100% of its intrinsic value it is sold.
The money in AGF International Stock is going to be run by Dublin based AGF International Advisors. Company head John Arnold already runs AGF World Balanced and AGF European Equity and has had a good go of things, especially recently, thanks to his value philosophy. We believe Arnold and co-manager Rory Flynn are highly skilled individuals and have the resources necessary to adequately manage a product such as this. Their expertise in Europe is evident but what is less well known is that they act as advisors for AGF's Asian funds.
AGF Emerging Markets Value was a weak fund to begin with and the loss of Brandes will likely do nothing but help. The fund will be managed in-house by Patricia Perez-Coutts who joined AGF in 2001 and who currently oversees AGF Latin America. Emerging markets have been red hot over the past six months and the team at Brandes was not able to fully participate in the rally despite the tremendous values that can be found in such countries. We can't comment on Perez-Coutts' track record because it is so brief, but even average numbers would be an improvement on what the team at Brandes was able to achieve.
