Stockchase Opinions

Pat McHugh CI Financial Income Fund CIX.UN-T TOP PICK May 28, 2007

This will stay an income trust until 2011. Very profitable with about 35% ROE. Expect distribution increases in the mid-to high teens.
$30.550

Stock price when the opinion was issued

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BUY
Mutual funds. Very strong competitor with good leadership. Talk about them getting together with Bank of Nova Scotia (BNS-T) taking on their mutual fund arm. Also talk about selling their brokerage arm. Looks like the talks have fallen apart. Good price.
BUY ON WEAKNESS
CI is asset heavy so they are probably down in assets 15%. This is a leveraged play on the market so the time to buy is when markets are down and you get a dividend while you wait for a recovery.
DON'T BUY
Their assets are mainly equity so you expect their revenue to be down 7% as the market has been.
DON'T BUY
Dividend is very risky. Fees they earn on mutual funds will be down. The fact that BNS (is buying 37%) may buy them does not mean it would not be at a level like they are at now.
PARTIAL BUY
An extremely well managed company but mutual fund companies are high beta stocks on the equity markets because they are a high margin product. Will be quite challenged on their earnings in the short term. Long-term it's a great company. Purchase by Bank of Nova Scotia (BNS-T) is very positive. If you believe markets are going to start coming back, it is not a bad time to start building a position.
COMMENT
Investment management. High quality holding. One of the highest quality management teams in the business. Great environment and should be able to make some good acquisitions. Not a lot of upside, but thinks the market is forming a bottom. Longer-term, they are going to come out of this in a very good position.
HOLD
(Market Call Minute.) One of the best money managers out there.
COMMENT

CI Financial (CIX.UN-T) or Sun Life (SLF-T)? This is a fairly tough one, because the insurance sector tends to do well if interest rates rise. Insurance sector, and Sun Life in particular, have had a big move this year as people have transitioned their portfolio just in case interest rates go up. CI has great leverage if equity markets continue to rise. They keep raising their dividend. Bank of Nova Scotia (BNS-T) keeps hovering over their shoulder to take them over and the stock is at a 10-12 year high. Thinks this company is more likely to do well because he thinks the equity markets are going to do well.

HOLD

There's a lot of grief in this space. There's a lot of value here, but it takes a leap of faith to leap into a mutual fund company in a world of ETFs.

DON'T BUY
One of the largest mutual fund managers. The problem is they have gone on a big acquiring spree of asset managers, frought with peril. The CEO has bought 30 RIA's mostly in the U.S. It is a show me story.