Fund sales drop post-RRSP season

(May 16, 2005) The Canadian mutual fund industry watched its traditional April drop-off in sales, as investors added $567 million in fresh assets to their holdings.

It was the worst month of the year so far, but that’s fairly typical, coming at the end of the RRSP season. Net sales lagged last April by $912 million, but were better than 2003 and 2002.

“Year-to-date, Canadian investors have purchased $10.1 billion in mutual funds,” noted Tom Hockin, president and CEO of IFIC. “April also marks the sixth straight month of positive sales for our industry, pointing yet again to the ongoing confidence Canadians have in our funds.”

The industry still underwent massive redemptions last month, though, totaling about $9.6 billion, with gross sales of $10.6 billion, including money market funds. Total assets under management in April climbed to $511.5 billion.

Investors remained conservative with their choices, with Canadian balanced and income oriented funds as the top selling categories. Based on the CIFSC categories, Canadian Balanced funds took in $695 million in new money, followed by Canadian Dividend funds which garnered $542 million. Canadian Bond and Canadian Income Trust funds took in $273 million and $153 million, respectively.

“April tends to be a month that has a lull as a result of tax time,” says Rudy Luukko, investment funds editor at Morningstar Canada. “Exacerbating that trend for this year for planning purposes has been the uncertainty over the fate of the foreign property rule.”

Luukko says he suspects there are a substantial number of investors holding off on foreign purchases until the federal budget actually passes.

“I can’t characterize the magnitude of it, but it would be at least some,” he says. “That would go some way toward explaining the weakness in the foreign categories, although Canadian equity funds are right down there as well, so it’s more of equities being out of favour.”

Investors continued to snub low-yielding money market funds and core Canadian, U.S. and global equity funds suffered as well. Money market redemptions totaled $337 million, while Canadian, Global and U.S. Equity saw redemptions of $305 million, $200 million and $83 million, respectively.

The top selling fund firms included RBC, which took in $222 million, TD at $218 million and CI, which netted $124 million. Among the laggards were AIC, with outflows of $308 million, AGF which shed $223 million and Fidelity with $107 million in redemptions.

On an individual level, international funds suffered the largest net redemptions, including $104 million from Fidelity International Portfolio, $99 million from Templeton Growth, and $88 million from AGF International Value.

Rounding out the top five list for redemptions were AIC’s Diversified Canadian and American Focus at $88 million and $75 million, respectively.

Luukko says AIC American Focused fund received a vote of confidence in a way, with net redemptions of only $75 million after the departure of the fund’s charismatic manager, Larry Sarbit.

“That’s what I would describe, under the circumstances, as a modest outflow,” Luukko says.

The best selling funds were Trimark Income Growth with $174 million in net new sales, RBC Monthly Income with $161 million, CI Canadian Investment with $141 million. BMO Monthly Income garnered $104 million and Mackenzie Cundill Value scooped up $98 million.

“The funds that appear to be able to do the best in the out-of-favour categories are those with the combination of a strong brand name and a strong performing manager,” says Luukko. “Those are common characteristics for both CI Canadian Investment and Mackenzie Cundill Value.”

Fidelity NorthStar also bucked the redemption trend for its category and the firm as a whole, landing in the top 10 overall sales list with net inflows of $92 million.

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

(05/16/05)

Steven Lamb