By James Langton

(January 18 – 17:50 ET) – Merrill Lynch has cut earnings estimates on a couple of Canadian fund companies.

Based on lower than expected year-end assets, Merrill is cutting its estimate for AGF Management Ltd. fourth quarter earnings per from 32¢ to 28¢. AGF assets were 8.6% under Merrill’s forecast.

Merrill says, “This is entirely due to market turbulence experienced in the fourth quarter. We estimate that AGF currently has 33% of its asset base ranked in top quartile 1-year returns which should provide a solid backdrop for a robust RSP-season. On the flipside, we estimate 26% of the asset base is currently ranked in the fourth quartile, suggesting that sales may be somewhat concentrated.”

The firm is cutting its estimates for fiscal 2001 as well, dropping 2001 EPS estimates from $1.26 to $1.16. Merrill is projecting that AGF’s acquisition of Global Strategy and its common share financing will be EPS neutral in the first fiscal year following the close of the deal. For 2002, it sees AGF growing earnings per share by 25%, assuming just 15% growth in its assets.

The other firm getting a downward revision, albeit a more moderate one, is Investors Group Inc. IG came in 4.2% under Merrill’s asset forecast.

Estimates for the fourth quarter and full year 2000 remain unchanged, but core equalized earnings before interest, depreciation and amortization (EBITDA) has been revised to $453.4 million from $460.4 million for 2000, and to $557.9 million from $568.8 million for 2001. “The extent of our revisions are less pronounced than for other companies we cover and we point to this as a primary reason to purchase Investors Group shares in a mutual fund market than continues to broaden its source of investment returns.”

Merrill also notes that, “We believe that Investors Group is positioned to accelerate its net sales profile on the back of improved mutual fund performance.”

As of December 31, OG had approximately 33.5% of its mutual fund assets ranked in the top quartile of one-year returns, and just 9.7% of total mutual fund assets are fourth quartile performers over one year. “In addition to turning performance, the company has recently introduced a new high net worth product offering, a banking product initiative and a revamped asset allocation program.”