Fund flows cap strong first quarter

Mutual fund flows slowed to a more sustainable pace in March, as net new sales totalled $4.6 billion, down from the $7.7 billion pop in February. So far this year, investors have poured $16.4 billion in new money into mutual funds, making it the best-selling first quarter since 1998, in terms of absolute dollar value. Total assets under management climbed to $690 billion, up 13.2% on a year-over-year basis.

“It was the best March since 1998, which was the record year for that month,” says Rudy Luukko, investment funds editor at Morningstar Canada. “It’s a continuation of the very positive trend for the industry that we have seen so far this year.”

While March was a good month for long-term funds, investors also parked a fair chunk of change in cash, as money market funds saw net inflows of $543 million.

Foreign-based investments remained in vogue, making up three of the top five fund categories in terms of sales for March. With net new sales of just over $1 billion, the global balanced fund category was the best seller, followed by global equity with $927 million.

Canadian balanced was the best-selling domestic category, with sales of $909 million, followed by Canadian income balanced, with inflows of $580 million.

On a year-to-date basis, Global Balanced and Global Equity are the best-selling CIFSC categories, with net inflows of $3.89 billion and $3.67 billion respectively. Canadian Balanced and Canadian Income Balanced have posted net sales of $2.88 billion and $1.83 billion, respectively.

“If you look at the top five selling categories, four of the five are balanced categories of some type,” says Luukko. “The only one that wasn’t balanced was Global Equity. As the year continues on, it seems that anything that is mostly Canadian in equity has been out of favour.”

The most redeemed category in March was Canadian equity, with $515 million in net outflows, followed by the ever-shrinking Canadian income trust category, with $219 million in redemptions.

“This can be seen in part as the continuing fallout from the new income trust tax regime announced last October,” Luukko says. “Clearly, there has been some rebalancing between domestic equity assets and foreign equity assets. It’s not a massive sell-off, but it’s a drying-up of buying interest. Overwhelmingly, the new money is flowing to the foreign categories.”

Among long-term funds, TD Canadian Bond was the best seller, raking in $166 million in new cash, followed by Trimark Global Balanced, with net sales of $106 million. Mackenzie Cundill Value was not far behind with inflows of $103 million, while the Trimark Fund pulled in $101 million.

RBC Asset Management continued to lead the field in terms of long-term fund sales, excluding money market funds, with nearly $710 million in net inflows. TD Asset Management posted net sales of $533 million, while Scotia Securities’ $393 million narrowly beat out IGM Financial’s combined sales of $390 million.

AGF Funds continues to celebrate its 50th anniversary with long-term fund inflows of $367 million while AIM Trimark stayed the course in recovering from its dry spell, with net sales of $256 million.

Despite such a strong overall month, there remained a handful of fund companies posting net redemptions. AIC saw the greatest outflows, at $69 million, followed by Fidelity, with $41 million leaving its long-term funds.

The most redeemed fund for the month was TD Real Return Bond, with outflows hitting $98 million, followed by Fidelity NorthStar at $76 million and Dynamic Focus+ Diversified Income Fund, at $74 million.

Investors continued to show a preference for wrap products, as funds of funds have made up more than half of all sales so far this year. By the end of the first quarter, they accounted for $9.1 billion in net sales.

“Existing funds of funds have attracted a large share of the new money, and companies have responded by adding additional product,” Luukko points out. “It just seems to be a more palatable package for investors than investing in the component funds. The industry is also actively promoting these.”

The big banks also led the pack in net sales of packaged products, with RBC selling $552 million, followed by TD with sales of $471 million. AGF saw the third best sales, with $224 million.

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

(04/16/07)

Steven Lamb