CI Financial Corp (CIX.TO)

Just bought Sentry, which looks accretive to him, in the upper single digits. Bought First Asset about a year ago, as well as an Australian asset manager. He is modelling 9% earnings per share growth with about a 3% annual dividend growth. Trades at around 12X, versus its five-year average of 16X. Even though their MER’s are coming down, the margins still are at 42%. 71% payout ratio on its 5%+ dividend.

Not his favourite space. There is tons of competition from everywhere. They made a recent acquisition and that is a positive. You have to get bigger in the business and then take costs out. Mutual funds have to disclose fees now. It is a tough grind for them. They are doing all the right things, but he does not see a ton of growth.

There has been a real knock at active management in the industry. These guys are the lowest cost provider of actively managed mutual funds. They have a 28% return on equity. This is quite a stable business. (Analysts’ target: $30.00).

Dividend yield of a little over 5%, and can grow this over the coming years. The entire mutual fund industry is struggling with commissions and the reduction of commissions as interest rates have come down. The industry has been hammered for the last 4-5 years with this problem, so their growth with the market hasn’t been as high. Feels it is largely priced in and the stock can gradually recover.

(A Top Pick July 5/16. Down 9.98%.) *Short* He’s been Short this for a couple of years and it has been good to him. The stock has rallied recently. A very expensive stock and margins are shrinking because of the management fees they are able to charge. Feels this is a long-term structural Short.

*Short* The competitive pressure has gotten worse. The stock price has risen, but that has been with the broader market in general, not because the business has improved. They still have very weak underlying net sales. Dividend yield of 5.1%. (Analysts’ price target is $29.50.)

They had 2.4 Billion in outflows due to industry headwinds. They have a 65% payout ratio so you are going to get that dividend. He forecasts 10% share growth over the next couple of years. It is cheap, 12 times, vs. its 7 year average. You will get a better exit later on. He has been writing puts to pick it up. Don’t have it as a big position or to hold for 50 years. You should exit if it reaches $32 over the next couple of years.

(A Top Pick July 5/16. Down 5%.) *Short* Still one of his largest short positions.

*Short* (Top Pick Nov 9/16, Up 13.10%) He has been short. He is just leaving it on. The stock is up a reasonable amount but an insider is selling. It is a very expensive stock in a dying industry. They are seeing net outflows.

*Short*, stay short. The industry is in secular decline. (Analysts’ Target: $28.83).

There are always take over rumours on this. It is the biggest independent fund company out there. He sees that as being less likely these days as most Canadian banks have their fund presence already. This is one of the more efficient operators, concerning expenses and paying good dividends, so it is a good place to be. However, they are facing challenges with regulations on fees.

*Short* He recently added to his short position. It was the first real pop in the stock since he started shorting it. The earnings were particularly bad and the firm sees net outflows from their funds. CRM2 is forcing brokers to disclose what they are paid by mutual fund companies. He thinks it is a secular bear story. There is somewhat of a risk that they get bought out.

*Short* (Top Pick Sept 15/16, Up 2.14%) He is keeping it on as he sees it going into the teens. There is enormous competitive and regulatory pressure.

His opinion on mutual funds in general is to Hold for now and maybe Buy later on. The mutual fund industry is about to go through a big problem with CRM2, where clients are about to find out the egregious amount they pay in MER’s to own the funds. That could cause some disruption for the industry. Dividend yield of 5.5%.

Just reported a significant outflow over the last quarter, about $1.5 billion of assets, and are projecting more to come in the next quarter. It’s primarily institutional assets, so it’s pretty low margin business. All these companies are under pressure and prices are being pushed down, so margins are likely to come down. The only way they can deal with that is through cost control. He is a little cautious about the whole industry.