Money market funds drive October sales: IFIC

A skyrocketing Canadian dollar helped sales of money market funds and domestic Canadian equity make a comeback in October, according to the latest statistics from the Investment Funds Institute of Canada.

With total industry sales topping $2.4 billion for the month, sales more than doubled September’s total of almost $994 million. Strong money market sales accounted for a little more than half of total sales.

“Investors moved $1.2 billion into money market funds this month — the highest inflow for money market funds since December 2001,” says Pat Dunwoody, IFIC’s vice-president of member services and communications. “The estimated market effect for long-term funds averaged -0.1% per month over the last six months, which likely contributed to the popularity of money market funds this month. However, capital markets performed well in October, with assets under management rising to $709.8 billion, up $8.4 billion from September.”

Rudy Luukko, investment funds editor for Morningstar Canada, says there isn’t much for the industry to crow about, as money market funds are traditionally the least profitable type of funds. Long-term fund sales in October were actually slightly lower than they were a year ago.

Luukko also notes most money market fund flows were largely into three of the large bank-owned firms: RBC Asset Management, TD Asset Management and CIBC Asset Management. The three companies accounted for $1.18 billion of net sales in money market funds.

“The principal beneficiaries were three major banks that had no exposure to the troubled non-bank–sponsored sector of the ABCP market,” Luukko says.

October was also marked by a comeback in Canadian equity. Four out of the top five CIFSC category sales were domestic fund categories, making up $1.9 billion or 84% of the total top five sales. Domestic equity funds had net sales of $2.8 million in October, making it the first positive month since March 2006.

The IFIC report says the Canadian dollar’s rapid rise against most currencies in October likely contributed to this result.

“The recent currency depreciation is putting to the test some of the convictions investors and their advisors are having about the prudence of diversifying internationally,” says Luukko. “The foreign investing theme remains intact. You look at the sales by CIFSC category, [and] after money-market funds, the top-selling long-term category was global equity balanced.”

Luukko attributes this more to investor commitment to conservative diversification, rather than any real concern for fund performance.

“[Investors are concerned with] anything but chasing performance numbers because the returns of funds in the global equity balanced category have been meagre. Last month the Morningstar Equity Balance index return was basically flat, with a 0.1% return,” he says. “If you look at year-to-date stats, these funds are also essentially flat — they’re down 0.6%. According to the Morningstar Balance index, which is a weighted average of all funds in the category, it’s -0.6% for the 10 months this year.”

The three most redeemed funds were still Canadian asset classes led by Canadian focused equity, although this category includes significant foreign content. After Canadian focused equity, Canadian equity balanced and Canadian fixed income were the next most redeemed categories.

Among the individual fund companies, there were big winners and big losers. RBC Asset Management maintained its juggernaut status in October, with $914 million in net sales, $583 million of which were in money market funds. The RBC Premium Money Market Fund alone had net sales of $386 million, Luukko says.

Dynamic Mutual Funds led the industry in long-term fund sales with $403 million. This was slightly offset by roughly $10 million in redemptions of its money market funds.

Funds provided by insurers also seem to be doing well. Manulife Investments had $261 million in net new sales. Timing-wise, these strong sales coincide with the announced guaranteed lifetime extension on its popular line of IncomePlus segregated funds.

With almost $146 million in net new sales, IA Clarington Investments continued to move up, and is right behind Manulife in assets under management, in stark contrast to the next largest fund company, AIC Limited, which continues to slide, with redemptions of $146 million.

AIC’s troubles in October pale in comparison to those of AIM Trimark Investments, which had $336 million in redemptions. Luukko says the Trimark Income Growth Fund was the company’s biggest bleeder and accounted for $136 million of the redemptions. The equity portion of this fund was formerly managed by star manager Geoff MacDonald, who departed AIM Trimark in August and was replaced by Don Simpson.

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

(11/15/07)

Mark Noble