February sees return to foreign funds

Canadian mutual funds enjoyed healthy sales in February, with net new sales of long term funds totaling $4.9 billion, according to the monthly data from IFIC. Adding in re-invested distributions of $605 million, net sales climbed to $5.5 billion.

“Canadians are making a concerted effort at ensuring their financial requirements are met,” said Joanne De Laurentiis, president and CEO of IFIC. “They’re taking advantage of the benefits of diversification through the purchase of foreign equity mutual funds, as well as looking down the road to retirement with the purchase of long-term funds.”

Net sales of foreign equity funds rose to their highest level since February 2002, totaling $771 million. Investors still preferred balanced funds, however, investing $1.9 billion in net new cash. Total assets under management in balanced funds climbed to $129.6 billion.

Total assets under management in February increased 0.3 % from January to $589.0 billion. Gross sales for the month of February, including money market funds, totaled $16.7 billion.

Net redemptions on domestic money market funds were nearly $690 million, while all other major categories had positive net sales for the month. Net outflows for foreign money market funds totaled just over $14 million, while mortgage funds saw net redemptions of $5.5 million.

U.S. common equity funds managed to scratch their way into positive net sales, collecting $261 million in new money.

On a year to date basis, IFIC’s Dividend & Income category still leads with net new sales of nearly $2.8 billion, while Balanced funds have gathered $2.4 billion in new money. Bond & Income round out the top three with $1.7 billion in new sales.

“The most significant new development, in terms of the types of funds that Canadians are buying, is the resurgence of foreign equity categories,” says Rudy Luukko, investment funds editor, Morningstar Canada. “While the more conservative domestic categories continue to dominate sales, we had global equity put on a strong showing.”

The global category saw net inflows of $425 million in February, which Luukko says is an impressive turnaround from last February’s $122 million in net redemptions.

“Over the course of a year, this bellwether category has gone from being the most redeemed long term category to one of the most popular — after Canadian Dividend, it was the most popular equity category,” he says. “Canadians are listening to the message that they need to diversify beyond our borders.”

He credits last year’s removal of the foreign property rule for registered plans, combined with the fact that February is the busiest month for RSP investors.

“I also think financial advisors have been counseling their clients to rebalance their portfolios in light of the very strong performance they have experienced in the domestic equity categories.”

He says this is a refreshing case of investors doing the right thing at the right time, rather than simply chasing returns in the latest hot category.

The single best selling fund was Mackenzie Cundhill Value, raking in $287 million, and keeping Mackenzie in net sales, which totaled $261 million across that family. Within the Global category, the second most popular fund was Fidelity NorthStar, with $181 million in net new sales. Rounding out the top three in the category was RBC O’Shaughnessy International Equity with $131 million in new sales.

The top selling categories remain the domestic income-oriented funds, though, with Canadian Bond seeing inflows of $1.132 billion in new sales, followed closely by Canadian Dividend with $1.131 billion. Canadian Income Balanced placed third, with net sales of $843 million, followed by Canadian Balanced at $774 million.

“The mainstream domestic equity categories fared poorly in what should be a big month for them,” Luukko says. “We saw only $60 million in net sales in Canadian Equity and only $50 million in Canadian Equity (Pure), according to the IFIC data.”

Bank-based fund companies dominated the end of RSP season, with RBC capturing $1.55 billion in net new sales. TD took the second spot, with net sales of $683 million followed by BMO at $514 million. CI Funds the top independent firm, with sales of $434 million, came in fourth place, while Investor’s Group had net sales of $406 million.

With February traditionally being the best month for funds, only three companies posted significant net redemptions. AIM Trimark saw the greatest outflows, totaling $289 million, followed by AIC with $148 million and Altamira at $41 million.

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

(03/15/06)

Steven Lamb