August caps solid summer for fund sales

(September 15, 2005) Strong sales in August rounded out what has been the best summer for the mutual fund industry since 1997.

IFIC reports that net sales for August were $1.8 billion, down slightly from $1.9 billion in July. “This represents a healthy showing for our industry and Canadians’ continued interest in investing over the long-haul,” said Tom Hockin, IFIC’s president and CEO.

That pushed total mutual fund assets under management up 0.4% to a new all-time high of $546.9 billion. Balanced funds once again were the most popular investment vehicle last month, with sales totaling $746 million.

The Canadian dividend funds and Canadian bond funds were the next strongest groups, with $638 million and $489 million in net sales respectively, excluding dividends.

“There continues to be a preference on the part of investors to go for the long term, income-oriented assets, which is understandable given the low yields we still have on money markets,” says Rudy Luukko, investment funds editor at Morningstar Canada.

A spate of fund mergers combined with the demise of clone funds last month made it impossible for Luukko to identify the best selling funds in August. But the big banks are again reported the strongest sales.

RBC reported the best net sales overall with $421 million in August. BMO was second at $297, followed by TD at $258 million,

Meanwhile, AIC continued to suffer net redemptions, with assets under management falling another $199 million last month. Other laggards include AIM Trimark and Fidelity which experienced net redemptions of $42 million and $39 million respectively.

Fund sales, however, are not up across all categories. Advisors still seem to be avoiding industry specific funds despite their healthy performance of late.

The most interesting news comes form Canadian equity class, which is the largest by assets, which was sold off to the tune of $460 million in August, the most of any group. “It is surprising that the Canadian equity category is doing so poorly,” says Luukko. “I would expect there to be some turnaround there in sales.”

Morningstar’s median return Canadian equity mutual funds at the end of August show a 12-month annualized return of 21.8% and a three-year return of 13.7%, Luukko notes.

The sell off in Canadian equity funds is particularly interesting considering they are being sold off at a faster pace than U.S. equity funds, which Morningstar reports has an annualized return of just 1.6% over the past year and 1% over the last three years.

Money market funds continue to be sold off as well with another $253 million in net redemptions in August, which brings total redemption to this category to $1.4 billion this year. Global equity funds round out the three categories with the most net redemptions at $220 million.

“My expectation is the relatively strong sales will continue because once a certain trend is in place there it has a certain momentum that tends to carry into future months,” Luukko predicts.

Filed by Mark Brown, Advisor.ca, mark.brown@advisor.rogers.com