February fund sales poor but positive: IFIC

Investors dipped their toes back into the Canadian mutual fund pool in February, recovering much of the outflows from January’s hefty sell-off.

“Given the types of equity markets we’ve had recently, the absolute dollar figure for all categories was fairly reasonable,” says Rudy Luukko, investment funds editor for Morningstar Canada. “However, when you start to drill down and look at what types of funds were actually being purchased, the fact of the matter is that it was a very poor month in terms of sales of long-term funds.”

Net sales of long-term funds totalled $2.9 billion — not bad considering the industry posted net redemptions of $4.3 billion in January. But it is a far cry from the $7.7 billion total recorded in February 2007.

Money market funds added an additional $3.2 billion in net sales, down from $4.8 billion in January. The combined total of long-term and money market fund sales brought $6.1 billion in net inflows, in the lower end of IFIC’s predicted range of between $5.9 billion and $6.5 billion.

“It was the weakest month of sales in the last five years. We haven’t seen a February this bad for long-term sales since 2003,” Luukko says. “Generally speaking, February is the peak sales month of the year. This was very much a lacklustre February, particularly since the bulk of the activity was in the industry’s least profitable product.”

Even within the money market space, one fund alone attracted a large share of sales, as the RBC Premium Money Market Fund saw net sales of $907 million, indicating a large institutional transfer of assets into the fund.

Long-term fund sales should see a bit of a spike in February, as investors rush to get their RRSP contributions in. Luukko points out that this close to the RRSP deadline, it becomes more important to judge sales against the same month from prior years.

“It’s a very uncomfortable time to be deploying new cash into the equity markets, but at the same time, returns are very meagre for the low-risk asset classes,” he says. “The continuing popularity of money market funds is primarily a case of investors during the RRSP season wanting to make their contribution and get their tax deduction.”

Global Balanced funds saw net inflows of nearly $1.6 billion, compared to net redemptions of $71 million in January. The second most popular asset class, as defined by IFIC, was the Domestic Balanced category, attracting $876.6 million in net new sales.

The least popular fund categories were Global & International Equity and U.S. Equity, with $100.2 million and $24.7 million in net redemptions, respectively.

“What we are seeing in February is a preference among investors for diversified fund categories, particularly stand-alone funds within the domestic balanced asset class and fund-of-fund products within the global balanced asset class,” said Pat Dunwoody, IFIC’s vice-president, member services and communications. “While we have seen some volatility over the last few months, long-term industry growth remains strong with total assets under management growing an average of 12.6% per year over the last five years.”

While investors flocked to the safety of money markets and the relative safety of balanced funds, they seemed to largely ignore the middle ground between the two classes.

“There was a virtual drying up of sales in straight fixed income funds. Their sales barely registered,” says Luukko. “Industry-wide, in the peak month of February, there was only about $30 million in sales for bond funds.”

Total industry assets climbed to $678.7 billion, up $7.1 billion from the end of January, with about $1 billion in market returns adding to the increase from sales. That’s still down from $697.3 billion at the start of the year, and shy of the $679.9 billion in assets the industry managed at the end of February 2007.

In the net sales derby, RBC Asset Management once again outpaced the rest of the pack, amassing $2.2 billion in net combined sales, with nearly $785 million flowing into long-term funds.

TD Asset Management’s combined sales of $850 million put it in second place, with $369 million in long-term fund sales. CIBC Asset Management rounded out the top three with just under $650 million in total net sales, although $637 million of that came from money market funds.

In terms of long-term fund sales alone, however, Fidelity ranked second, with $464 million in net sales, pushing TD into third place.

AIM Trimark saw the greatest net redemptions, with $480 million in outflows, while AIC Limited saw $135 million in net redemptions. Phillips Hager & North was hit by $55 million in net redemptions, possibly indicating investor dissatisfaction with the company being taken over by RBC.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com

(03/17/08)

Steven Lamb