Fundcos urged to join income bandwagon

Mutual funds have a dog’s life: they’re fed money, they occasionally mess on the carpet and they age faster then their owners. While investors can age gracefully over the next 10 years, mutual fund manufactures have half that time — at best — to prepare for 2016 if they expect to hold on to their slice of the market.

Funds need to grow along side their current clients, said Goshka Folda of Investor Economics at Infonex’s 10th annual mutual funds conference in Toronto this week.

As boomers start to retire, their tolerance for risk will drop off since they will have less time to recoup their losses. That means a shift away from an equity-centric formula towards income-oriented products, explained Folda, senior consultant and managing director at Investor Economics, such as income balanced funds, bond funds, income trust funds and dividend funds.

Of course, these types of funds are already popular. Much of the growth on the market has been concentrated in this category. But, “Income funds are not being used for income,” she explained. “People are jumping on the income stream now because the markets are cooperating.”

This strong performance could really pay off in the long run. “Funds that have a demonstrated track record of delivering the income and growing it over time are going to be the ones that going to be successful,” she stressed.

Even though past performance does not guarantee future gains, investors will be more inclined to buy funds that have five and 10 year track records, particularly for income products where aging investors, who have will have a lower risk tolerance, and will look for consistency instead of funds that might shoot out the lights. “This is the time you need to get the products ready,” she insisted.

Folda explained that U.S. companies Investor Economics works with started addressing this need two years ago because their baby boom generation is slightly ahead of Canada’s. In order to prepare for the looming liquidation phase, these firms realized that they needed to prepare.

Firms that fail to recognize this trend could feel the pinch. They need to cater to boomers, since this segment is growing faster than the market. Fund companies are always jockeying for top dog and large shifts between the big firms are not unheard of. Five years ago, AGF, Mackenzie, Investors Group and CI would have been at the top of the sales charts, last year it was the big banks, such as RBC and TD.

Filed by Mark Brown, Advisor.ca, mark.brown@advisor.rogers.com

(04/06/06)