June mutual fund sales offer few surprises

(July 15, 2004) Canadians continued to invest in mutual funds in June, with net new fund sales hitting $491 million. Including reinvested distributions of $722 million, net sales hit $1.2 billion.

“Net sales for long-term funds were $854 million, a $600 million increase from the previous month and the highest for the month of June since 2000,” said Tom Hockin, IFIC’s president and CEO. “Assets in the industry rose for the third straight month and the eighth time in the last nine months to $476.1 billion.”

Total assets under management rang in at $476.1 billion, up a modest 0.5% from May’s $473.7 billion, but 21.8% higher than June 2003, when the total was $390.8 billion.

“It was pretty much in line with estimates from the beginning of the month,” says Peter Loach, vice-president and managing director of investment fund research at BMO Nesbitt Burns.

Canadians remained fairly conservative investors in June, preferring the dividend and income and bond and income classes of fund, which posted net new sales of $404 million and $393 million respectively. Balanced funds came in third, with $309 million in new net sales.

“There have been missed opportunities as a result of the caution that Canadians have been showing in their mutual fund investments,” says Rudy Luukko, investment funds editor of Morningstar Canada, referring to Morningstar’s performance indices. “The only fixed income category that is up more than 1% is the one that is most closely correlated with the equity markets, the Morningstar High Yield Bond Total Index, which year-to-date is up 2.3%.”

Meanwhile, Luukko says the Global Equity Total Index is up 7.2% for the first six months and the Canadian Equities Index is up 4.5% for the same, non-annualized period.

Funds focused on Canadian common equity and foreign equity posted net redemptions of $296 million and $122 million, respectively. “It’s not representative of the average portfolio. It’s specific to a few firms and a few funds that are being redeemed,” says Luukko. “There are only about five or six funds that account for 100% of the redemptions on the global side.”

The same appears to be true for the Canadian equity side, as data indicates about $120 million in redemptions from three AIC funds alone — their Diversified Canadian, Advantage and Advantage 2.

The biggest percentage month over month increase in the IFIC data was found in U.S. common equity funds, which saw net new inflows of $101 million, an increase of 441%.

“There was a fund-specific situation there. One particular fund can sometimes skew the overall trend,” Luukko says. “In this case it was McLean Budden American Growth, which had net new sales of $89.6 million. Without that fund we have a much smaller number.”

AGF was hit by net redemptions of $174 million and Luukko says there appears to be a negative correlation with Brandes, its former international fund manager. Brandes Global Equity fund recorded net sales of $65 million, while AGF posted net redemptions from its AGF International Equity Fund of $56 million. Luukko cautions that there is no data available to prove a direct relationship.

Money market funds were hit hard by net redemptions, totaling $360 million.

IGM Financial, the combined listing of Investor’s Group, Mackenzie and Counsel Wealth Management funds, was easily the top fund company with total assets edging higher by 0.6% to almost $79.2 billion. The second largest firm by assets remained RBC, with $44.4 billion.

“The advisor-sold firms have been making a comeback in terms of industry leadership,” says Luukko. “In fact, they accounted for the top three leaders by fund complex last month.”

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He points out that Brandes racked up sales of $160 million; Mackenzie $100.5 million; and Franklin Templeton $96.5 million. The top five were rounded out by McLean Budden and CI Funds.

“The bank fund sales tend to have greater seasonality than the independents,” says Luukko. “The focus really is on RRSP season and once that’s over there’s not that same emphasis, whereas the independent advisors appear to be more consistent throughout the year.”

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

(07/15/04)