Fund sales rebound in October

Sales of mutual funds bounced back in October from their incredibly weak performance the month earlier, although the gains were far from evenly spread.

Net new sales of long-term funds totalled $1.3 billion in October, a sharp rise from $40 million in September and well above the $900 million reported in October 2005. Adding in money market fund sales, total net new sales topped $1.6 billion.

“This was a very robust month for fund sales, particularly long-term fund sales,” says Rudy Luukko, investment funds editor, Morningstar Canada. “Overall, it was the best October since 2001.

“The previous months had been weak sales months, so maybe there was some kind of pent-up demand.”

The total net inflow was concentrated within two best-selling categories, as investors pumped $724 million into Balanced funds and $606 million into Foreign Common Shares funds.

Balanced funds remain the best-selling asset class on a year-to-date basis, with $8.2 billion in net sales.

“We continue to see a strong demand for income-oriented long-term products and that’s a response to the very low nominal returns available on deposit instruments and the even worse returns on an after-tax basis,” Luukko says. He cautions, however, that funds focused on the income trust sector could see net redemptions through November, following the federal government’s shift in tax policy.

Taking into account both sales and market performance, Balanced funds have grown their assets by 32.2% on a year-to-date basis, making it the fastest growing category. Balanced funds make up 26% of the fund industry’s assets, up from 22% in December 2005. U.S. Common Shares and Foreign Common Shares grew their assets by 31.9% and 17%, respectively.

Meanwhile, the Canadian Common Share category saw its market share drop from 22% to 18% over the same period. This trend extended into October, as investors cashed out $751 million, making it easily the most redeemed asset class.

Next most heavily redeemed were the U.S. Common Shares funds, which saw net outflows of $156 million.

Money market fund sales were positive, with $238 million in net inflows. On a year-to-date basis, however, investors have pulled out more than $1.2 billion from their cash equivalent funds.

RBC was once again the top-selling fund complex, raking in nearly $510 million in total net new sales, with $277 million flowing into the high-minimum RBC Premium Money Market fund alone.

Placing a distant second was TD, with net new sales of $381 million, followed by CIBC with $201 million, although CIBC’s net sales in money markets masked $30 million in long-term fund redemptions.

The top-selling non-bank fund complexes were AGF and Dynamic, with net new sales of $152 million and $151 million, respectively. Rounding out the top three independents was Brandes, with $84 million.

“There has been an impressive turnaround by AGF,” says Luukko. “It has turned itself around over a fairly short time period from being in net redemptions to being the top seller last month among independent firms.”

The most redeemed fund complex was AIM Trimark, which saw net outflows of nearly $169 million, followed by AIC with outflows of more than $75 million. Altamira had total net outflows topping $43 million.

“Sometimes companies can be mired in a slump, like AIM Trimark is, and there tends to be a momentum that sets in,” says Luukko.

Total industry assets under management reached $572 billion, up 3.2% from the previous month, and up 16.5% on a year-over-year basis. Long-term fund assets total $527.7 billion, up 18.6% from the same time last year.

Since CI stopped reporting its data to IFIC in October, the group has adjusted its past data, excluding CI’s assets to make comparisons more accurate. Factoring in CI’s assets, as reported in a press release November 1, the industry soared 3.2% to a total AUM of $629.7 billion, up 16.8% from October 2005.

Of the $54.4 billion gain in assets reported by IFIC, $15.5 billion was due to net sales, while $39 billion was earned through market performance.

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

(11/15/06)

Steven Lamb