AGF investors wonder what to do

The AGF organization received a major blow in March. The Charles Brandes organization of San Diego dropped the bombshell by announcing they are resigning as manager of AGF’s largest and most successful fund, AGF International Value, as well as two other funds, International Stock and Emerging Markets Value.

The news caught everyone off guard, including the senior management of AGF, who apparently weren’t even given the courtesy of an advance warning before the public announcement was made.

A press release issued by the company on Tuesday referred to the “unexpected” development and said AGF was “surprised” and is launching a worldwide search for a replacement manager.

The company has not decided at this point whether it will accept the offer by Brandes to remain at the helm of the funds for the rest of 2002.

People are wondering
The move to dump AGF was made so Brandes can launch its own fund line in Canada, a move expected to come this summer.

Given their success with the AGF funds, the Brandes entries will almost certainly attract strg support from investors. I’ll be monitoring them closely as more details emerge.

Meantime, people are wondering what to do with their positions in AGF International Value and AGF International Stock.

One investor e-mailed me within hours of the announcement to say he was dumping his entire holding of International Value.

Well, not so fast. There are several things to consider before you make a move.

Consider these points:

  • You may be hit with deferred sales charges that can be substantial, unless you switch your money to another fund within AGF.

The problem is that there is nothing else in their line-up that comes close to the record of the Brandes-managed funds.

AGF Global Equity Class would be the closest match to International Value. It uses a value approach as well, and has actually outperformed the Brandes fund recently. However, its long-term numbers are very weak.

Next page: No equivalent to International Stock

The company has no equivalent to International Stock, which invests throughout the world, except within North America.

  • If the units are held in a non-registered plan, you could be looking at a sizeable capital gain if you’ve owned them for some time.

In that case, you’ll need to assess the impact of the tax bite before you sell.

  • It sometimes happens that the new manager actually does as good a job as the outgoing one, maybe better.

Altamira Equity Fund, for example, actually produced a slightly higher return in the three years following the 1997 departure of high-profile manager Frank Mersch than it had in the comparable period before he left. Perhaps the AGF search will turn up a top-flight replacement.

  • The Brandes organization will continue running the show for the AGF funds for at least the next three months, and perhaps until year-end.

It might be argued that their hearts won’t be in it, considering they’re about to launch their own line. That could be the case if AGF decides to keep them on and the two groups end up in direct competition for new investor dollars later in the year.

Would reflect badly
However, it’s unlikely that Brandes & Co. would want to see their AGF funds perform poorly in the run-up to their own launch. That would reflect badly on them and would weaken their ability to attract investors to their new fund line.

My bet is that the funds they run for AGF will perform very credibly for the next little while.

Forced sales hurt
The danger is that a rush of redemptions might force the premature sale of AGF fund assets to raise cash. International Value held less than four per cent of its assets in short-term notes as of the end of January, so this is a real possibility.

Forced sales could hurt results, and would likely mean taxable capital gains distributions to investors in non-registered accounts at year-end.

On balance, however, my advice at this point is to maintain your positions in the AGF funds and await further developments.

Adapted from an article that originally appeared in the Internet Wealth Builder.