Investors rediscover bond funds: IFIC

Canadians were clearly still spooked in February, investing just under $1.7 billion in mutual funds in February, typically prime time for the industry as investors make last-minute contributions to their RRSPs.

Money market funds alone accounted for $1.4 billion. The rather paltry $258.9 million that flowed into long-term funds marked the first time the group had positive net sales since June 2008. The industry has seen net inflows of just $2.8 billion so far this year.

In contrast, February 2008 saw long-term fund sales of $2.9 billion, while an additional $3.2 billion flowed into money market funds.

“Investors were a little less conservative in their investment choices in February,” notes Pat Dunwoody, vice-president, member services and communications. “Aside from the strength in money market fund sales we have seen for some time now, Canadians invested $870 million in bond funds and $131 million in balanced funds in February.”

Bond funds attracted only $319.3 million in January and just $55.5 million in net sales for all of 2008. In fact, bond fund sales haven’t topped the $850 million mark since October 2005, when they attracted net sales of $956.2 million.

“There is definitely a segment of the market that has rediscovered the bond fund and the benefits of this type of diversification on the overall volatility of a portfolio,” said Dunwoody.

Investors’ return to balanced funds marked a reversal from January’s net redemptions of $152.1 million but is well shy of the $2.1 billion in net sales posted in February 2008.

The exodus from straight equity funds continued last month, with $683.2 million in net redemptions, compared with January’s outflows of $376.2 million and $279.2 million in net sales in February 2008.

U.S. stock funds led the decline, with net redemptions of $534 million, while Canadian equity funds saw redemptions of $302 million. Sector-focused equity funds actually enjoyed net inflows of $154 million.

On a firm-by-firm basis, RBC Asset Management once again dominated, with more than $1.3 billion in net money market sales and another $71 million in long-term fund sales.

The title for top seller of long-term fund sales went to CIBC, however, with $119 million in net sales. Dynamic ranked second, with nearly $93 million in net sales, followed by HSBC, with $85 million.

Invesco Trimark posted the worst net sales, with $247 million in total redemptions, followed by Franklin Templeton ($101 million) and TD Asset Management ($97.5 million).

In the past 12 months, the industry has been hit by $3.6 billion in net redemptions, with strong money market fund sales being more than offset by long-term fund redemptions.

“The last time industry net sales were in negative territory over a March to February period was over the 12-month period ending February 2003,” the IFIC commentary points out. “This period was followed by five years of strong industry fund sales as equity markets recovered from the downturn at the start of the century. Over the five years ending February 2008, industry sales totalled $91.1 billion, or an average of $18.2 billion per year.”

Overall industry assets were $476.9 billion at the end of February, down 2.9% from the previous month and 23.1% from the previous year. Over the past 12 months, IFIC estimates that market effect has erased $139.6 billion, or -22.5% of beginning assets, from industry assets under management.

(03/16/09)