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Independent asset managers have been facing stiff competition from the onslaught of low-cost index-tracking products. But these companies are showing some life in 2021: assets under management are rising and money is flowing back into mutual funds, giving the companies’ share prices a lift.

Among the bigger players focused on retail investors, AGF Management Ltd. is up 23.4 per cent in 2021 as of Friday, IGM Financial Inc. is up 30.1 per cent and CI Financial Corp. is up 32.1 per cent. The gains have easily outperformed major stock market indexes, such as the S&P 500 and the S&P/TSX Composite.

The gains mark a stunning comeback from the depths of the pandemic-inspired meltdown in 2020, when the shares of asset managers cratered as their assets under management shrank and investors recoiled from adding more savings to funds that were caught in the severe selloff.

CI Financial’s share price plunged 55 per cent over six weeks from February to March last year. AGF’s share price fell 62 per cent over the same period, hitting a 15-year low.

But apart from last year’s market turmoil, asset managers have also faced intense competitive pressures over the longer term. In particular, exchange-traded funds – many of which simply track major indexes – have been attracting investors with low fees and strong performance relative to actively managed mutual funds.

According to the Canadian ETF Association (CETFA), Canadian-listed ETFs grabbed 59.1 per cent of investment fund inflows in 2020, dominating mutual funds.

Cheaper ETFs have forced asset managers to slash fees on mutual funds. According to CIBC World Markets, the average management fee rate at CI Financial fell from 1.8 per cent in 2011 to 1.32 per cent by the third quarter of 2020. AGF’s average management fee rate has fallen below 1 per cent. Even so, both companies have suffered waves of redemptions over the past decade.

This ugly operating environment has weighed on the share prices of asset managers for years, making an investment in them look about as enticing as department stores and cable TV.

However, the embattled mutual fund is making a comeback. Assets under management are rising with the stock market, generating more fees. And investors appear to be taking a new shine to active management by putting more money into the funds.

Net sales – or money flowing into mutual funds after factoring in redemptions – totalled $14.1-billion in March, marking an impressive turnaround from $18.2-billion in net outflows in March, 2020, just as the pandemic was pummelling stock prices, according to Desjardins Securities.

In the first quarter of 2021, mutual fund net sales totalled almost $46-billion, far exceeding ETF net sales of $14.3-billion, according to the CETFA.

The reason for the turnaround? The better-performing stock market is attracting retail investors, who may prefer a fund manager after the sharp downturn in early 2020 posed a challenge to some do-it-yourself investors.

The competitive ETF landscape can also be bewildering, with a proliferation of products – including new funds that track bitcoin – that can intimidate novice investors who may shy away from opening their own trading accounts. (ETFs trade on stock exchanges, like equities).

Nik Priebe, an analyst at CIBC World Markets, also pointed out in a January note that active and passive investment management may find a way to co-exist over the longer term: if markets grow less efficient with the rise of passive investing, active managers can add value, raising the attractiveness of mutual funds.

For now, investors looking at shares of asset managers will find low price-to-earnings ratios of about 10 and high dividend yields averaging about 4 per cent. These numbers look attractive if mutual funds can maintain their allure.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 06/11/24 4:00pm EST.

SymbolName% changeLast
CIX-T
CI Financial Corp
+3.07%23.83
AGF-B-T
AGF Management Ltd Cl B NV
+2.73%10.92
IGM-T
Igm Financial Inc
+0.75%42.89

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