Late-month jitters can’t derail high fund sales: IFIC

July may seem like ancient history for those slogging through the current market downturn. But fund sellers can take heart in the news that last month’s fund sales were quite resilient to a late month market slide, according to the latest monthly statistics from the Investment Funds Institute of Canada.

“Canadians continued to focus on the long term and on diversification in July. Long-term fund sales were $2.6 billion. This was the highest for the month of July since 1997,” says Pat Dunwoody, IFIC’s vice-president, member services and communications.

Dunwoody says that sales total is nearly four times last July’s. Net new sales were nowhere near 1997’s monstrous record of more than $4 billion for the month, but it was nevertheless the second largest July haul in the industry’s history.

Rudy Luukko, investment funds editor at Morningstar Canada, says the strong sales totals are all the more significant considering that toward the end of July, world markets took a nosedive, reducing the total mutual fund asset base by 0.5% to end July at $703.5 billion.

“This market downturn was not enough to derail the strong inflows that we’ve been seeing, particularly in balanced type funds,” he explains. “Balanced funds finished one through three in the ranking of sales by asset categories last month.”

According to Morningstar’s data, balanced asset categories still suffered declines in value of about 1%, but compared to other categories like U.S. small- and mid-cap equity, which had declines around 5%, their losses were quite moderate.

Luukko says he expects balanced categories to continue to gain traction as investors seek diversification in the wake of volatility affecting world markets.

“The main sales theme right now seems to be one-stop diversification through the balanced type of funds,” Luukko says. “The other theme was the global investing theme, since the top-selling equity category last month was global equity.”

IFIC reports the Global Balanced and Global & International Equity Asset classes had $1.2 billion and $600 million in net sales respectively — 63% of total sales for the month. As in previous months, this drive toward foreign investment has been partly funded by an exodus from Canadian-focused funds.

“The most redeemed category was one of the domestic categories, Canadian Focused Equity. It had $248 million in net redemptions,” Luukko says. “Canadian income trusts continue to be in net redemptions, and the other category that had more than $50 million in net redemptions was Canadian inflation-protected fixed income.”

Luukko says investors did show a preference toward domestic funds in income-focused categories that are traditionally safe havens from market volatility such as the Canadian Dividend and Income Equity category, which had $275 million in sales, and Canadian money market funds, with $246 million in new sales.

Whether this trend will continue through August Luukko is not sure because of the potential exposure of money market funds to asset-backed commercial paper, which are short-term corporate debt obligations that some issuers have had difficulty paying back due to heightened concerns over credit risk.

“People would have assumed the money market fund sales in Canada are a flight to safety with $246 million in new sales. In light of the difficulties with asset-backed commercial paper, this could possibly throw a wrench in money market sales, because of the adverse publicity in the money market area,” he says.

“It should be noted that asset-backed commercial paper is a very minor portion of the asset base of money market funds. There is some risk of creating a scare when there isn’t too much to be concerned about with the absolute value of these funds,” Luukko adds.

As individual fund families go, RBC led the pack with approximately $477 million in net sales, $433 million of that in long-term fund sales. IGM Financial, which includes Investors Group, Mackenzie Financial and Counsel Group of Funds, was second with around $378 million in net sales.

Next was Dynamic Funds, which took in more than $280 million in net sales. Luukko says Dynamic is a good example of a company that’s surging in sales due to the underlying performance of its funds. The firm has 12 different five-star-rated mandates from Morningstar, more than any other fund company in Canada.

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

(08/15/07)

Mark Noble