Fund sales lag resurgent performance: IFIC

The markets rebounded in April, but fund sales, particularly long-term ones, did not. The industry barely broke even in net new sales for the month, according to the latest data from the Investment Funds Institute of Canada.

Total industry sales, which came in at $560.8 million, were down from the $2.6 billion seen in March. Sales were also down from April 2007 ($2.5 billion) but were in line with industry sales over the previous two years, when sales for April were $468 million (2006) and $540 million (2005) respectively.

The all-important long-term fund sales category remained stunted at $49 million, despite an upswing in market performance that helped industry assets grow by $17 billion to $705.2 billion in total. It was the first time the industry has surpassed the $700 billion mark since October 2007.

Pat Dunwoody, IFIC’s vice-president of Member Services and Communications, says there are some signs that the long-term categories are making a comeback.

“Though money market funds, which brought in $512 million, remained popular with investors in April, Global Balanced fund sales were not far behind, at $475 million. We expect that sales will become more diversified over time as investors seek a balance between the relative performance and relative risk of short-term versus long-term funds,” Dunwoody says.

Rudy Luukko, investment funds editor for Morningstar Canada, does not see that resurgence happening yet.

“Investors continue to show an aversion to risk,” he says. “The equity categories had redemptions of about $1 billion. Balanced-type products continue to hold up and had net new sales during the month. We continue to see most of the sales activity last month occurring in money market funds.”

For the first time since September 2007, money market funds were not the top-selling category last month. They had $330.5 million in sales, down from $2.2 billion last month but up from $116 million in net redemptions at this time last year.

The best-selling category was Canadian Fixed Income, with $668.8 million in sales. However, Luukko suspects this might be a bit of an aberration because of an apparent internal shift of assets at Desjardins.

“I saw that number and asked, where is that coming from? It seems it was one fund, Desjardins Enhanced Bond Funds — it had net sales excluding distributions of $474 million,” he says. “However, all of that was accounted for by transfer activity, as opposed to new inflows coming into that specific fund.”

Interestingly, one of the most redeemed categories, Canadian Short-term Income, also seemed to be deeply affected by a Desjardins fund, Desjardins Short-term Income, which Luukko says had transfer out of it of $412 million.

Luukko notes that it wasn’t just Desjardins that was a catalyst for industry-wide numbers.

“Very significantly, higher performance by one company can tend to skew the overall picture. That certainly happened last month in the case of RBC Asset Management, which had total net new sales excluding redistributions of $749 million,” he says. “That beat by a long shot anyone else in the industry. Most of those sales occurred in the money market space. It was really only a handful of companies that were able to achieve any degree of success in sales last month.”

Luukko points out the other two big winners were Dynamic Funds and Fidelity Investments. Dynamic led the industry in long-term fund sales, with $323 million in net new sales in that category. Fidelity followed, with $181 million in net long-term fund sales.

“I think their sales success shows it’s not a case of the banks’ taking over the industry. Lot of fight left in the independents collectively as a group. It’s not a story of one type of fund sponsor taking over the industry and dominating another. There is room for companies to make inroads in market share if they get their game plan right and they have the fund performance, marketing and other factors working in their favour.”

In the case of Dynamic, its performance certainly seems to be a key reason for success, Luukko says.

“Performance is one way of helping drive sales,” he says. “Dynamic continues to dominate the list of firms with the most five-star-rated Morningstar funds.”

An independent firm also was the month’s loss leader. AIM Trimark Investments’ redemption troubles continue. The firm had more than a half-billion dollars ($653 million) in redemptions last month. With that tally, the company has lost almost 20% of the value of its assets under management since this time last year.

Filed by Mark Noble, Advisor.ca, mark.noble@advisor.rogers.com

(05/15/08)

Mark Noble