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Why buy the holding company when you can go directly to the source?


Top 1000 Rank #2 | 2016 Revenue $50.6 billion | 2016 Profit $1.1 billion

To see the full Top 1000 rankings, click here.

It's been a tough slog for shareholders of Power Corp. The company's share price has risen by only 23% since 2012, and is down about 2% over the past 12 months. The main cause: Canada's low interest rates.

Despite its mighty-sounding name, Power doesn't do a whole lot. The Montreal-based holding company controls Power Financial Corp., which in turn holds Winnipeg-based insurer Great-West Life Co. and asset manager IGM Financial. Low interest rates have dampened returns at Great-West, a business Morningstar analyst Brett Horn calls a "good company in a not-so-great industry." When rates rise, which they eventually will, the insurer's fortunes should improve, boost-ing Power Corp.'s numbers along with it. In the meantime, Great-West has undertaken cost-cutting measures, announcing in April plans to trim 13% of its Canadian workforce.

At IGM Financial, whose main asset is Investors Group, sales have improved significantly, largely due to better fund performance and the recent elimination of deferred sales charges on Investors Group funds. Horn cautions, however, that the general backlash against mutual fund fees could affect IGM's performance. "The issue with Canadian asset managers today is where fees are going to go," says Horn.

Power does have two things going for it. It's trading below its historical earnings, at 9.7 times price-to-earnings compared to its five-year average of 10.1 times. As well, its 4.9% dividend continues to grow, with the company boosting its payout by 7% in the first quarter. However, a Barclays analyst points out that while Power is a good investment, Power Financial is cheaper today, which makes it a more attractive buy.

Horn suggests that Great-West and IGM—both of which are publicly listed companies—may be even better options. Getting direct exposure to these stocks, which move more in line with business results than the holding companies, could produce better returns when interest rates rise. "It's hard to understand why you would choose to invest in Power over those," he says.