Fund sales stumble again in May

(June 16, 2003) For the third consecutive month, mutual fund sales finished in the red in May as investors continued to bail out of money market and equity funds. Net redemptions reached $637 million last month, according to figures released today by IFIC. That’s an improvement from April, when redemptions topped $1.6 billion.

Money market net redemptions were $805 million in May, offset somewhat by $169 million in net sales of long-term funds.

“For the past two months, assets in long-term funds increased a total of almost 7%, and all long-term fund categories had positive increases,” said IFIC president Tom Hockin.

Although the bond/income and dividend/income categories did well in May, with about $550 million in new sales, equity funds saw redemptions of around $400 million.

Investors remain tentative about getting back into the markets, despite signs of a stock recovery, says Gareth Tingling, fund research manager at Morningstar Canada. “While there are indications that confidence is starting to return, ultimately a sustained rally requires a sound economic underpinning and, so far, economic reports have been mixed,” he said.

Tingling adds the pace of recent stock market gains may also be a concern for some investors, who believe that assumptions for growth in corporate earnings are too optimistic. “If economic growth does not end up ‘filling in’ the earnings forecasts with revenues, stocks that have appeared to be at a reasonable valuation will suddenly appear very expensive,” he cautions.

Year to date, net fund industry redemptions stand at nearly $800 million, a far cry from last May, when sales topped the $10 billion mark.

Despite the overall negative numbers, most of the major fund companies saw small asset increases in May. Among the top three of Investors Group, RBC and AIM/Trimark, assets rose an average of 1.8%. Some firms did better. Mawer and Acuity managed about a 5% asset increase, Aegon was up 14% while Meritas, which specializes in socially responsible investing (SRI), recorded an impressive 55% gain.

“We’re still tiny by most standards but I would say that we are getting some serious attention from investors and advisors who are looking for a SRI fund family,” says Meritas CEO Gary Hawton.

Gross sales of all funds totalled $7.3 billion. Industry assets rose 2% in May to $387.7 billion compared to April, but are down more than 10% from last year.

More than 90% of mutual funds had positive returns in May, according to a separate report released today by Morningstar Canada. That’s the second straight month of gains, although last month’s weren’t as strong as April.

Related News Stories

Mutual fund sales take April hit as investors ditch money market funds Seeing red: March fund sales drop again after brief recovery in February

“Gains in May were broad-based but generally smaller than those in April,” says Tingling.

Although only one of Morningstar’s 32 fund indexes was negative in May, year to date, more than half of the 4,600 funds tracked by the fund researcher remain in the red.

Morningstar’s science & technology index was May’s top performer, followed by natural resources and Canadian small-cap equity. The best-performing fund in May was ING Global Communications, which jumped nearly 16%.

At the other end of the scale, Morningstar’s Latin American equity index was May’s worst performer, as the Canadian dollar gained ground against other currencies.

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

(06/16/03)

Doug Watt