Money market fund redemptions fuel sales slump

(October 15, 2004) Net sales of mutual funds fell into negative territory in September for the first time in a year as investors pulled out of money market funds, IFIC reported today.

Net redemptions reached $545 million last month, IFIC said in its monthly report on fund sales. Money market redemptions increased to $894 million in September, their worst performance since June 2003, mainly due to rising interest rates over the past few months, said IFIC president Tom Hockin in a statement.

Rudy Luukko, investment funds editor at Morningstar Canada, notes that the median return for Canadian money market funds over the last year has been a weak 1.5%. “Continued deterioration in returns means continuing redemptions,” he says.

Sales in long-term funds for September were $349 million, slightly lower than last month. “This is encouraging to see since September is historically one of the slowest months of the year for long-term fund sales,” said Hockin.

Luukko agrees that September has come to be an off-month for the fund industry in general. “This marks the third consecutive September that fund sales as a whole have been negative,” he points out.

Balanced funds led the way in September with net sales of $334 million, followed by income trusts at $296 million and dividend funds at $292 million, says Luukko. “So to the extent that they are buying, investors are favouring income-oriented funds that have a definite Canadian emphasis.”

Besides money market funds, Canadians are also selling global equity and Canadian equity funds, he adds. “The mainstream Canadian equity category was the second most redeemed, with $373 million flowing out.”

Among fund companies, Fidelity had the most redemptions in September, at $270 million. AGF’s redemptions were $264 million and AIC was down $220 million. Investors Group was also in net redemption, but only to the tune of $15 million.

On the positive side, Brandes led the industry with net sales of $157 million, followed by Phillips, Hager & North with $126 million. CI Mutual Funds was third with net sales of $554 million.

In mid-September, the Ontario Securities Commission named Investors Group, CI, AGF and AIC as being under investigation for frequent trading practices.

“The OSC investigation appears to have had little to no impact on the fund companies that were singled out by the regulator as targets for potential enforcement action,” notes Luukko. “AGF and AIC were in trouble before this happened and it continues to be the same story.”

Fund industry assets under management rose 0.5% from last month to $470.5 billion, 15% higher than the same time last year.

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com