Fund assets slip on trust uncertainty

Mutual funds generated $1 billion in new sales in October, according to IFIC, despite poor markets and uncertainty in the income trust sector.

“The net sales for October helped increase the industry’s year-to-date sales to $19.4 billion, the highest for that time period since October 2001,” said IFIC president Tom Hockin. Gross sales for the month, including money market funds, totaled $11.7 billion.

While sales may sound strong, redemptions took a big bite out of total assets under management, which decreased 2.8% to $539 billion, from September’s total of $554 million.

“The picture looks better on a year-over-year, same month basis,” says Rudy Luukko, investment funds editor at Morningstar Canada. “It was the best October since 2001, when we had total net new sales, excluding re-invested distributions, of $3.2 billion.

“October was generally a poor month in the markets. The decline in assets under management was due to market depreciation.”

There was a dramatic reversal of fortune for mutual funds heavily invested in income trusts, following Ottawa’s announcement in September that the Finance Department would review the tax-efficient structures.

“It appears investors may be concerned about the future of tax treatments of income trusts,” said Hockin. “There were net redemptions of about $190 million in October in income trust mutual funds, compared to the recent average of $200 million in monthly net sales.”

IFIC’s Dividend & Income category saw a 62% drop in net new sales, attracting just over $264 million, after redemptions of $839 million. Net new sales in the Bond & Income category fell 41% to just under $551 million, after losing $811 million to redemptions.

Broken down by CIFSC categories, Canadian Income Trust Funds had redemptions of $191 million, second only to Canadian Equity’s $249 million in redemptions.

“This is a sharp shift in trend from previous experience in this category, which had been among the better sellers,” says Luukko. “During the course of the year assets in this category increased by 20.1% in the first 10 months, compared to the IFIC overall average of 13.9%.”

Balanced funds remained the most popular, despite a 26% drop in net new sales, with $741 million in new cash invested. Total assets under management in balanced funds were $115.4 billion.

Domestic money market funds posted positive net new sales of $104 million, an increase of 151% from September, making October the second month this year with positive flows to these funds.

“I think the shying away from income trusts in particular and the markets generally might have contributed to money market inflows,” says Luukko, but he points out that the $300 million difference from September is of little significance, given the total assets of over $45 billion.

October was particularly kind to some of the bank-based mutual fund companies, with RBC Asset Management topping the sales charts with $461 million in net new sales. TD Asset Management selling $412 million in new funds, followed by BMO Investments, with $257 million.

Completing the top five list, Phillips, Hager & North had net new sales of $97 million and HSBC attracted $69 million in new cash.

Not all of the banks were winners, however, as CIBC Asset Management was hit with net redemptions totaling $195 million. AIM Trimark saw redemptions of $191 million, with $79 million being pulled from its Trimark Select Growth fund alone

AIC’s redemptions totaled $171 million, while Scotia Securities and AGF rounded out the bottom five with redemptions of $128 million and $110 million, respectively.

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

(11/15/05)

Steven Lamb