Income, balanced funds top April sales

(May 17, 2004) The Canadian mutual fund industry continued to post strong sales in April, as investors pumped $1.7 billion in new cash into the market, according to IFIC.

“Net sales are the strongest for an April since 1998. Sales for the first four months of 2004 totaled $12.3 billion, compared with $8.8 billion in 2002 and net redemptions of $1.7 billion in 2003,” said Tom Hockin, IFIC president and CEO. “Sales of long-term funds in April were $1.4 billion with the majority of these sales continuing to be invested into the balanced, bond and dividend & income categories.”

This is well off the $5 billion and $4 billion in February and March, reflecting the traditional drop off in sales following the RRSP contribution deadline.

“RRSP season brought a pretty abrupt turn around from negative to positive sales for stock funds, overall — so much so that it didn’t appear to have much staying power,” says mutual fund analyst Dan Hallett, president of Dan Hallett and Associates in Windsor, Ontario. “Prior to the RRSP season, stock fund redemptions were trending downward. If you delete RRSP season, April is simply a continuation of that downtrend in net redemptions.”

While investors continued to favour more conservative funds, they sold off more than $161 million in Canadian equity funds. Money market funds continued to decline as well, with net redemptions of $38 million, excluding reinvested distributions.

“Income and yield are still hot commodities,” says Hallett. “Bond — both Canadian and foreign — and dividend categories accounted for more than $8 of every $10 in mutual fund net sales last month. While there has been some price pressure in yield-oriented securities of late, it has not been significant enough to spook investors. The monthly distributions keep flowing and many are sitting on paper gains so retail investors remain comfortable in such funds.”

He says the net redemptions in equity funds is a little misleading, since more than half of the equity funds tracked by IFIC reported positive net sales in April, indicating there is still interest in stock market investing.

“A year ago, long term funds had net redemptions of $319 million, compared to net sales of $1.4 billion in April 2004,” Hallett adds. “In both absolute and relative terms, this is the best April that long term funds have seen since 2000. That’s good news for the industry.”

While Canadian equity funds were hit with redemptions, the big losers were the international funds.

“A lot of the big global funds have been the victims of tremendous redemptions,” says James Gauthier, mutual fund analyst at Dundee Securities. “This is certainly the same old thing that we’ve seen for the past six to nine months, there’s no new trend emerging at all.

“It is a bit disappointing to see equity fund flows slip back into negative territory, but there was no real catalyst to motivate investors to move back into equity funds.”

Gauthier says it will be interesting to see whether investors continue to invest in bonds and income vehicles in May, considering the poor performance the asset classes posted in April.

April also saw a 1.3% rise in total assets under management, to $470.7 billion from $464.6 billion in March. On a year-over-year basis, assets have risen 23.8% from $380.2 billion in April 2003.

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