Money market funds take a hit as mutual fund sales slip again

(December 16, 2002) Mutual fund sales finished in the red for the eighth straight month in November, despite improving stock markets and overwhelmingly positive fund performance. Last month’s outflows reached $580 million, according to the Investment Funds Institute of Canada.

That total is an improvement from previous months. Redemptions topped $1 billion in both September and October.

Money market funds accounted for all of November’s outflows, IFIC says, totalling $765 million.

“Returns on money market funds haven’t been great for the better part of the year, so people are cashing out of these short-term investments,” says IFIC’s Erwin Go.

Long-term funds posted positive sales last month, at around $185 million, the first time that’s happened in four months, Go says. He notes that investors remain wary about the stock markets, noting that most of November’s sales were in the more conservative fund categories.

Although the bond/income and dividend/income categories performed well, accounting for the bulk of November’s sales, the Canadian, foreign and U.S. common share categories were all negative.

“It looks like investors are starting to move back into equities, but they’re doing it defensively,” says analyst Aaron Brown of FundMonitor.com. “The asset classes that got the most money were income-yielding securities.”

“It’s definitely a good sign that long-term funds were in positive territory, but we’ll have to wait and see how the market performs,” Go says. “Investors want to see a sustained return before they come back in.”

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Gross sales reached $7.5 billion in November. Assets under management came in at $397.5 billion, up 3% from last month, but 4.2% lower when compared to last year.

It was a positive month for fund companies, with virtually all reporting higher sales compared to October. Investors Group remains at the top, with AIM/Trimark moving into second spot, edging out RBC Funds. TD Asset Management and Mackenzie Financial round out the top five.

Mutual fund performance was decidedly positive in November for the second straight month, according to Morningstar Canada. All but one of the 32 fund categories Morningstar tracks finished on the plus side and 95% of all funds had positive returns last month.

“The two positive monthly performances posted by mutual funds in October and November may have restored investors’ faith that equity markets move in more than one direction,” says Morningstar analyst Iain Giles.

Giles says although it’s too early to predict a trend, the positive performance of mutual funds over the past two months has provided some “much-needed optimism for investors who are thus far enduring a rough 2002.”

The disconnect between mutual fund investment and performance is not surprising. Experts say it usually takes fund investors three to six months to catch up with the markets.

IFIC president Tom Hockin predicts a return to net sales in January and February — traditionally the two strongest months of the year for mutual fund sales — but says he doesn’t expect to see “tremendous” numbers until next summer.

Filed by Doug Watt, Advisor.ca, dwatt@advisor.ca

(12/16/02)

Doug Watt