Fund sales steady and strong

(October 17, 2005) Canadians were buying mutual funds and moving out of money market investments in September. Canadian bond funds reported the highest change in net sales during the month, while Canadian equity funds, despite relatively strong market activity during the year, suffered with the highest number of redemptions.

Overall, IFIC says net sales for the month of September, excluding reinvested distributions, reached $1.8 billion, compared to $545 million in net redemptions a year earlier.

“It’s the first September since 2001 that we’ve had positive sales overall in the industry,” says Rudy Luukko, Morningstar Canada’s investment funds editor. “It’s definitely a turnaround for the better.”

For the first nine months of the year, net sales total $18.4 billion, also a four-year high, adds IFIC president Tom Hockin.

Redemptions in the money market category pulled back to $170 million, compared to $894 million in September 2004. Long-term funds, excluding money market funds, had nearly $2 billion in net new sales compared to net sales of $349 million a year earlier.

The balanced fund category was the strongest in September. Going forward, Luukko says the industry can probably expect to see more fund companies coming out with balanced products.

Evidence of that trend is already being seen in the number of lifecycle-type products coming to market. CI Investments issued a prospectus earlier this month for a new series of portfolio funds, CIBC launched the Sequence Portfolios brand earlier this summer, Ethical Funds introduced the Ethical Advantage lineup, while Clarington Funds and Scotiabank launched Target Click asset allocation funds and Scotia Vision series funds.

Lifecycle funds have portfolios with set maturity target dates when client will need their assets. As the portfolio draws closer to its target date, the fund’s asset mix is shifted to become more conservative.

“There’s probably going to be significant emphasis on the balanced category because of the strong momentum it’s enjoying,” says Luukko. “Even though we are already well-served with a large number of balanced products, we can expect to see more.”

Currently there are roughly 129 new balanced funds listed in the Morningstar database with less than a year of historical returns.

RSP clone fund terminations continue to colour the picture on a number of fronts. The Brandes Global Equity Fund, for example, is listed among the sales leaders this month at the same time the company merged the fund with assets from its RSP global equity fund.

“The top six funds all had this kind of element — inflows from some other fund that was being eliminated,” says Luukko.

RBC Asset Management, TD Asset Management, Phillips Hager & North, BMO Investments and CI Investments reported the highest net sales. Top funds, excluding those with inflows from merger and termination activity, were the TD Canadian Bond Fund and RBC Monthly Income Fund.

Companies suffering the highest number of net redemptions included AIC ($202 million), AGF Management ($142 million) and AIM Trimark ($137 million).

Total fund assets under management in September increased 1.3% a record high of $554 billion.

Filed by Kate McCaffery, Advisor.ca, kate.mccaffery@advisor.rogers.com