Fund sales’ losing streak hits nine months

(January 15, 2003) In a pattern similar to most of 2002, mutual fund sales finished in the red in December as nervous investors continued to redeem funds. Outflows reached $238 million last month, according to the Investment Funds Institute of Canada, the ninth consecutive month of redemptions.

Similar to November, when outflows were $580 million, money market funds accounted for the bulk of the redemptions. Money markets outflows were $215 million last month, with long-term funds posting a smaller $22 million loss.

Equity funds took a big hit in December. However, most of those losses were offset by gains in the bond and income fund categories, which posted $296 million in net sales.

IFIC president Tom Hockin notes that despite the negative numbers, redemptions have steadily decreased from the dark days of September and October, when monthly outflows topped $1 billion.

“In spite of a difficult year with a number of months of net redemptions, we should not forget that net sales did not decrease in 2002,” Hockin says. Year-to-date sales netted out at $3.4 billion, Hockin says, thanks to the traditionally strong RSP-heavy months of January to March.

The $3.4 billion yearly total is down 88% from 2001 and is the worst performance for the fund industry since IFIC began reporting detailed assets in 1991.

That’s because the fund industry has matured, argues analyst Aaron Brown of FundMonitor.com “We really can’t expect to keep seeing the huge growth we saw in the 1990s,” he says. “There’s so much more competition out there for mutual funds. Five years ago, ETFs, hedge funds and income trusts weren’t that popular. Now, investors have a lot more options for allocating their money.”

There’s a belief among some analysts that the worst could be over, especially with the 2002 RSP season starting up. Hockin predicts net sales for the industry this month, but he doesn’t expect strong numbers until the second half of the year. “Research clearly shows that it takes a full year of recovery before mutual fund investors take a real interest,” he said in an interview last month.

“I think sales will come back once the equity markets start showing a pulse again,” adds Brown.

Gross mutual fund sales were $8.6 billion in December. Total industry assets stood at $391 billion last month, down 8% compared to December 2001.

December’s mutual fund performance was typical for the year, according to Morningstar Canada’s monthly report. Gold, resource and bond funds rallied, but other sectors slumped. Seventeen of Morningstar’s 32 fund indexes lost ground last month.

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Money market funds take a hit as mutual fund sales slip again Fund outflows reach $1.1 billion in October, investors ignoring market rally

“After a promising two-month rally in October and November, Santa Claus failed to deliver for investors in December,” says Morningstar analyst Iain Giles. “Instead, mutual fund performance emerged in the familiar pattern that is representative of the difficult equity market correction endured in 2002.”

Morningstar’s Precious Metals Fund index surged 94% on the year as the price of gold rose to a six-year high. Natural resources, bonds and income trusts also finished 2002 on a positive note. At the other end of the scale, Morningstar’s Science and Technology index plunged 42%. The healthcare, international equity and Canadian equity categories were also weak.

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Filed by Doug Watt, Advisor.ca, dwatt@advisor.ca

(01/15/03)

Doug Watt