January worst month on record: IFIC

January 2008 has been deemed the worth month on record for redemptions of long-term mutual funds, the bread and butter of the retail fund industry, according to the latest data from the Investment Funds Institute of Canada. If not for incredibly strong sales of money market funds, the industry would have ended the month in overall net redemption.

According to IFIC, net redemptions in long-term funds were more than $4.3 billion, while sales in money market funds hit a staggering $4.8 billion. Overall, the industry finished the month with net sales of $460.5 million, down from $2.9 billion for December 2007 and $4 billion for the previous January. Industry assets declined 3.7% from December and 0.3% from last January, to end the month at $671.6 billion.

Rudy Luukko, investment funds editor for Morningstar Canada, says these figures show investors aren’t bailing out of the mutual fund industry just yet. Instead, it indicates a transfer of wealth from long-term funds to money market funds, as investors adopt a wait-and-see attitude, parking their investment in cash equivalents until market volatility settles.

“Total industry assets fell $20.7 billion, but the main contributor was market depreciation and net redemptions of long-term funds,” Luukko says. “Fears of a continuation of recent market downturn that we’ve seen have kept investors on the sidelines. Industry assets declined but investors don’t appear to be deserting the industry in any great numbers.”

There certainly is a reversal in buying trends. Last year, the top-selling categories were mainly long-term balanced funds. Some of these categories are now among the most redeemed.

“Balanced funds were by far the best-selling types of funds of 2007. If you look at the category-by-category sales, the sales of previously popular balanced funds also appear to have collapsed at least temporarily,” Luukko says. “The second-most redeemed category last month was Canadian Equity Balanced at -$943 million. The fifth was Global Balanced at -$301 million.”

Luukko notes that the redemptions in long-term funds were widespread. Almost all asset classes were subject to redemptions.

“While the net redemptions were not evenly distributed, the negative trend seemed to cut across a broad range of asset classes,” he says. “There wasn’t any specific flight from equity funds or foreign or domestic assets specifically.”

Interestingly, one category that did manage to eke out net sales was target date portfolios, with 2015 target date portfolios being the fifth best-selling asset class overall.

“We continue to see strength primarily in money market fund sales as capital markets remain unsettled,” says Pat Dunwoody, IFIC’s vice-president of member services and communications. “Highly diversified and customized target date portfolios had sales of $165 million and were the investment of choice for investors taking a longer view.”

On the individual company side, Luukko says recognized providers of money market funds obviously fared well from the record sales. For the most part, these were bank-owned fund companies.

RBC Asset Management once again dominated fund sales because of its money market offerings. It had $1.9 billion in net sales in its money market funds, although its total net sales were lower because of about $202 million in redemptions of its long-term funds.

In money market sales, RBC was followed by TD Asset Management, which had net sales of $729 million in that category, but like RBC, it suffered redemptions in long-term sales. Its total net sales were $394 million.

Very few companies reported net sales in long-term funds. Desjardins reported more than $520 million in long-term sales, but as Advisor.ca reported earlier this month, Desjardins’ high sales figures were largely due to structural shifts in some co-branded funds of funds that were converted into regular mutual funds using a segregated account with a portfolio manager.

The worst of the worst in redemptions was AIM Trimark Investments. The firm was hit by $817.7 million in long-term fund redemptions.

Filed by Mark Noble, Advisor.ca, mark.noble@advisor.rogers.com

(02/15/08)

Mark Noble