Canadian fund market slowly diversifying

(July 6, 2005) Canada’s investment fund market is still largely concentrated in Ontario, but other regions, most notably Quebec and Western Canada, are gaining ground, according to Investor Economics.

The research firm gathered data on the country’s investment fund assets as of March 2005. Ontario has 48% of the market, a 2.5 percentage point drop compared to five years ago. Quebec is at 16%, followed by British Columbia (13%), Alberta (10%), Manitoba and Saskatchewan (8%) and Atlantic Canada (9.5%).

Ontario’s decline partly reflects the strong presence of independent manufacturers who have lost business to managed asset programs offered by the banks and to alternative investments, such as structured products and hedge funds, the report says.

Quebec and Western Canada have been gaining share, though both regions still show plenty of growth potential, Investor Economics says, particularly Quebec, which is the most under-penetrated market for funds.

In general, Manitoba, Saskatchewan, Alberta, the Atlantic provinces and Quebec have all seen their market share rise, largely at the expense of Ontario.

Interestingly, Quebec has a healthy segregated fund industry, with 22% of the country’s market share. “Strong well-established MGA and insurance broker distribution networks work to Quebec’s advantage in this arena, as does the conservative nature of its investors,” the report says.

Ontario generated 67%, or $5.9 billion, in net new sales during RRSP season. Quebec was a distant second, at 17% or $1.5 billion, while B.C. was third at 14%, or $1.2 billion.

Investor Economics also tracks investment funds as a percentage of the total wealth market. Funds represented 30% of Canada’s wealth market in 2000, but have since declined slightly to 28.4%.

The Prairies and Ontario are the most “fund-friendly” regions, Investor Economics says. Manitoba and Saskatchewan lead the pack at with funds representing more than 40% of the wealth market ˜ Ontario is not far behind at 34%. Quebec is the laggard of the group at 20%. Its fund market has enjoyed strong growth, but overall wealth has expanded at a faster pace.

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com