Investors go shopping for global equity

Mutual fund sales leaped higher in November, as Canadians got into the spirit of the season — RRSP season, that is — according to the latest monthly statistics from IFIC.

Net sales in long-term funds jumped to $2.3 billion, making November the best month this year since the end of the traditional RRSP season in March. Year to date, long-term sales hit $20 billion but have averaged only $700 million over the RRSP “off-season” months.

“Sales were very robust last month,” says Rudy Luukko, investment funds editor, Morningstar Canada. “In fact, it was the best month of November for the industry since 2001.”

Total fund assets grew to $646 billion, up 2.6% in November and 16.2% on a year-over-year basis. That healthy growth is attributable not only to solid sales but to buoyant markets, with year-to-date investment gains topping $57 billion. The asset base for long-term funds has been growing at between 16% and 17% since 2003.

Investors continue to favour foreign equity and balanced funds, investing $1.6 billion and $1.2 billion in these categories, respectively. Global Equity has garnered the largest inflows among CIFSC categories, with $1.2 billion, far outstripping the $451 million flowing into second-place Canadian Income Balanced.

Balanced funds have been on a steady march for the past five and a half years, climbing from 16% of total industry assets in 2001 to 26% today. Foreign equity funds account for 17% of industry assets.

The preference for global funds, as opposed to more focused regional funds or international funds, demonstrates the risk-averse stance of many Canadian investors, as the global mandate provides the greatest diversification.

“This is indicative of a growing appreciation on the part of investors for foreign diversification,” says Luukko. “I don’t think it’s any coincidence that this occurred during what was a very trying month for portions of the Canadian equity market.”

One of the most popular fund categories was pummelled as the market reacted to Finance Minister Jim Flaherty’s October 31 announcement that the federal government would implement a tax on income trusts.

Funds with a large exposure to income trusts saw a sell-off of $534 million in reaction to the announcement, which combined with capital losses to trim the fund group from $11 billion in late October to less than $9.5 billion.

“Fortunately for investors and for the industry itself, the bloodbath that occurred in income trusts was an anomaly within what was generally a very good month for long-term investing,” Luukko says.

Year to date, three of the top five best-selling fund CIFSC categories remain income oriented: Canadian Income Balanced ($6.1 billion), Canadian Bond ($5.9 billion) and Canadian Dividend ($5.4 billion).

There remain three categories in net redemptions for the year: Canadian Common Shares (-$644 million), Dividend & Income (-$253 million) and U.S. Common Shares (-$121 million).

“There is still a lot of softness in the sales of the mainstream Canadian stock categories,” Luukko says. “It’s disappointing for the industry given that returns have been generally pretty good in recent years for Canadian stock funds.”

But he points out that this could be seen as Canadian investors following advice, taking profits from their domestic investments and redeploying the capital overseas.

Money market funds continued to post positive inflows as well, with $295 million.

RBC continued to dominate as the top-selling fund manufacturer, with overall fund sales of $758 million, followed by TD, with $431 million, and IGM Financial, with $225 million across its three divisions.

AGF continues its resurgence, posting the best sales among the independents with $224 million in net sales.

CI Financial, which no longer reports sales figures to IFIC, had net redemptions of $213 million, largely due to “unrelated transactions by four institutional investors,” the firm said in a release. AIM Trimark reported $117 million in redemptions, followed by AIC with $57 million in outflows.

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

(12/15/06)

Steven Lamb