February fund sales best in a decade: IFIC

Last month saw the highest level of fund sales for the month of February in a decade, with net new sales of $8.0 billion, boosting long-term fund assets to $633 billion, according to the latest data from IFIC. Total industry assets, including money market funds, climbed 1% to $680 billion.

“It was really a booming month of sales. It was the second highest in history for the month of February, exceeded only by 1997, when sales excluding reinvested distributions topped the $10 billion mark,” says Rudy Luukko, investment funds editor, Morningstar Canada.

Luukko says February’s sales were almost singularly driven by investment in foreign equity and balanced funds. The global and international equity fund class saw the strongest inflows, with $3.2 billion in net sales; it was followed closely by domestic and global balanced funds, with $2.2 billion and $2.5 billion, respectively.

“There were two dominant themes of February. One was global investing, and the other was a strong preference for balanced or portfolio-type products. In some instances these two trends converged, as was the case with the second-top-selling category, global balanced,” Luukko says. “Investors are clearly looking for diversification outside Canada.”

This trend was also evident in the redemptions of Canadian equity classes. Domestic equity has seen year-to-date net redemptions of more than $2.1 billion, and the Canadian equity class specifically saw net redemptions of more than $765 million last month.

Much of this has to do with a perceived lack of diversification in Canadian equity, particularly its dependence on natural resources. Luukko points out that the natural resource category by itself was the third-highest redeemed category at $228 million.

February also saw specific companies reaching new heights: Both RBC and TD easily broke the $1 billion mark in sales, at $1.5 and $1.1 billion respectively. Luukko said the strength of these two companies has been their ability to deliver on the distribution side since they are by no means the individual leaders in the popular fund classes.

“It was noteworthy there were two fund companies that had one billion plus. Both of them were banks, RBC and TD respectively. This reflects something of a trend on the distribution side. They’re very strong in balanced products, but they’re certainly not the only game in town for balanced, let alone foreign equity, where it’s generally the independents that have been the market leaders here,” he says.

Of the independents, AGF had a phenomenal month, posting the highest net sales in the company’s history at $510 million.

“This is a company that turns 50 years old this month, so they’ve had a stunning turnaround from a year earlier,” Luukko says. “They have been doing really well performance-wise with a number of their foreign equity products. Their sales have been reasonably broadly based, but the foreign equity funds managed by the Dublin-based team headed by John Arnold have been very particularly popular at that firm.”

Luukko also singles out CI and AIM Trimark for strong sales. CI had the sixth-highest total of the month with sales of $443 million, while, much like AGF, AIM Trimark continues its own turnaround with sales of $427 million.

AIC continues to slide, with more than $72 million in net redemptions, followed by Dynamic Mutual Funds, with more than $52 million in net redemptions.

It remains to be seen how the market slide at the end of February will affect sales in March, but Luukko is optimistic that the impact will be limited due to the fact that mutual funds are long-term investments, so they tend to cushion themselves against market corrections and because the geographic region that was hit the hardest, East-Asia, represents a very small proportion of Canadian investments.

“I don’t expect there to be a major hit by investors who just made new commitments. The Asian regional funds accounted for a very small portion of overall sales,” he says.

Filed by Mark Noble, Advisor.ca, mark.noble@advisor.rogers.com