By: Larry MacDonald

“Buy. Hold. And Prosper,” goes the catchy slogan for Canadian mutual-fund company AIC Limited. But it may soon have to change to “Buy. Hold. And Fold,” considering the way net redemptions are wreaking Havoc with AIC Funds’ asset base.

According to data from the Investment Funds Institute of Canada, AIC Funds had net redemptions of $1.45 billion over the 12 months to June 30, bringing assets under administration to $5.17 billion. The 22% percentage decline in assets was the worse of any fund, as far as I can see.

AIC Funds was pretty much the fund most committed to the Warren Buffett, buy-and-hold value philosophy in Canada. The turnover rate in its portfolio was among the lowest, making it one of the most tax-efficient funds to hold in a non-registered account.

But with their portfolio emphasis on the financial sector, many of the flagship funds are down 25% to 35% on a yearly basis. It looks like AIC Ltd. customers don’t have the resolve to stick out the downturns as true buy-and-hold types should have (and even though AIC Funds’ long-term averages remain respectable – for example, the AIC Advantage Fund has returned 10.6% annually over the last 20 years).

Just when AIC Fund managers should be buying up good companies on the cheap, they are instead faced with the prospect of having to sell holdings to raise cash for redemptions. That’s not a good omen for one of the “good guys” in the Canadian mutual fund universe. And if the redemption notices keep coming in, that could put more downward pressures (ceteris paribus) on the shares of the companies in which they have invested – notably Canadian financials.