May sees strong fund rally, sales tepid

The ongoing stock market rally boosted returns for Canadian mutual fund investors in May, according to preliminary data from Morningstar Research. All but seven of Morningstar’s 24 mutual fund indices posted positive results for the month.

Despite the healthy gains in equities, the best performing sector was a traditional defensive play. The Morningstar Precious Metals Equity Fund Index gained 23% over the course of the month, as the price of gold rallied 10% to nearly $1,000 an ounce.

“The weakening U.S. dollar and inflationary concerns stemming from the printing of stimulus money have supported the upward momentum for these precious metals, which are often viewed as an inflation hedge,” says Nick Dedes, fund analyst for Morningstar Canada.

The natural resource sector rose along with gold, as investors bet that a global recovery was in the works, which spurred demand for commodities. The Morningstar Natural Resources Equity Fund Index rose 13.6% in the month.

The overall Canadian Equity Fund Index also managed a double-digit return, gaining 10.6% in large part due to the weight of the resource sector in the Canadian stock market. The stronger Canadian dollar also played a part in the rally.

Other Canadian fund indices that turned in stellar performances:

• Canadian Focused Equity rose 8.1%; • Canadian Income Trust Equity rose 8.5%; • Canadian Small/Mid Cap Equity gained 9.5%; • Canadian Focused Small/Mid Cap Equity rose 9.6%; and • Canadian Dividend & Income Equity Fund Index rose 7.9%

Not all of the gains were in Canada, however. The Emerging Markets Equity Funds Index gained 8.9% in May, capping a three-month run of strong performance.

Some of the largest losses were the result of foreign exchange rates. The U.S. Small/Mid Cap Equity Fund Index fell 3.3%, while the U.S. Equity Fund Index fell 1.9%.

“The U.S. dollar depreciated roughly 8% against the Canadian dollar and saw similar declines relative to other major currencies, including the Euro and the British Pound,” Dedes says. “The movement likely reflects concerns over the U.S. dollar’s traditional safe-haven status as well as a growing risk appetite on the part of investors, who are moving out of U.S. Treasuries and back into equities.”

Other losers included the Health Care Equity and Science & Technology Equity fund indices, which gave up 0.9% and 3.2%, respectively. Again the rising Canadian dollar would have had an impact, as funds in these categories tend to be more heavily weighted in U.S. stocks.

The equity market rally helped boost mutual fund assets, but there was only a marginal improvement in sales, according to preliminary data from the Investment Funds Institute of Canada.

Total industry net sales are estimated to have been between $497 million and $997 million for the month.

“We are seeing a significant movement of assets back into long-term funds from money market funds, as investors are moving off the sidelines and getting back into the market,” said Pat Dunwoody, vice-president of member services and communications with IFIC. “There was more good news for investors in May, as assets under management grew for the third consecutive month. Over the past three months, assets have increased by a total of $60 billion or 12.6%.”

IFIC estimates that the industry ended the month of May with net assets of between $534.7 billion and $539.7 billion, up 3.75% from last month’s total of $517.7 billion.

RBC Asset Management reported total net sales of $665 million for the month, with $240 million in net money market sales and net long-term funds sales of $425 million.

Dynamic continued to post strong sales, reporting $361 million in net sales of long-term funds, making it one of the top selling fund families in the month.

TD Asset Management reported $302 million in net long-term fund sales and $122 million in net money market fund redemptions. Total mutual fund AUM was $49.2 billion as of the end of May.

“May was a solid month for TD Mutual Funds, with gross redemptions down over 50% from last year,” said Tim Pinnington, president TD Mutual Funds. “Investors continued to show confidence in our long-term funds, especially our fixed-income products. This demonstrates our in-house portfolio management team’s expertise in corporate bond research.”

Investors Group posted positive net sales of $12.2 million in its long-term funds, while investors pulled $16.7 million out of its money market funds. Mutual fund assets under management totaled $51.4 billion.

Mackenzie Financial announced net long-term fund redemptions of $75.1 million, with an additional $51.8 million flowing out of money market funds. Total assets under management at the end of May were $57.8 billion, up from $55.0 billion at the end of April.

CI Financial reported net sales of $136 million on gross sales of $649 million. Total AUM increased by $4.4 billion.

AGF Management reported net redemptions of long-term funds totalling $27.8 million, with $14.1 million in money market net redemptions. Market affect helped boost total mutual fund assets, which rose to $20.9 billion, a month-over-month increase of 4.5%.

Mavrix Fund Management reported net sales of $0.4 million, for the month, on gross sales of $7 million. Total AUM increased by 11.65% in May to $307.5 million.

“Most of our funds had another good month in terms of performance,” says David Balsdon, chief compliance officer, secretary-treasurer and vice-president with Mavrix. “Gross Sales continue to improve primarily in our resource and small cap equity funds as well as our conservative income oriented funds.”

(06/02/09)