Money market sales surge: IFIC

Investors were playing it safe in the month of May, preferring to park their money in short-term investments for the time being. Net inflows to the mutual fund industry topped $2.2 billion, according to the Investment Funds Institute of Canada.

Long-term funds accounted for $752 million in net new sales, which is respectable considering sales for the previous three months averaged just $200 million per month.

“The equity markets, and not new sales, were the big drivers of asset growth last month,” says Rudy Luukko, investment funds editor, Morningstar Canada. “That spurred the industry to record assets under management, as reported by IFIC. Sales of long-term funds were in something of a slump. You look at the figure of $752 million; that was the lowest figure for the sales of long-term funds in the month of May since 2004.

“I don’t see any significant resurgence in sales of long-term funds as we head into the summer months and the prime vacation periods,” he says. “I don’t see any momentum to change that in the near term, although the fall might be another story.”

Money markets funds, on the other hand, saw the strongest inflows, totalling $1.46 billion. Bank-owned firms dominated this space, with RBC Asset Management accounting for $980 million of the money market inflows, while TD Asset Management and CIBC Asset Management added another $384 million and $101 million, respectively.

While investors are putting a large amount of new capital into money markets, IFIC points out in its statistical commentary that investors are at the same time switching assets out of money market funds, with $125 million migrating into long-term investments.

Industry assets under management hit an all-time high of $719.3 billion, up $14 billion, thanks largely to market appreciation. Over the last three months, market returns have added $34.7 billion to industry AUM.

While long-term investment inflows were solid, virtually all of that money went into fund-of-fund products. Net sales for long-term stand-alone funds were just $28.7 million while fund-of-funds pulled in $723.8 million.

“Over the years, it has evolved from a product market to a so-called ‘solutions’ market,” says Luukko. “The one-stop shopping types of funds — balanced funds, portfolio funds, target-date funds — have gained a lot of appeal among both investors and advisors.”

Luukko points out that there is not yet a single target-date program that can post a five-year performance record, and that packaged solutions still make up a small proportion of industry assets.

“They had something like $160 million in sales last month, so there are more sales in that small and new category than there are in the entire [long-term, stand-alone] fund space,” he says.

Global balanced funds were the most popular asset class, as defined by IFIC, with net sales of $573.8 million. Domestic balanced was the second most popular, attracting $416.5 million in new cash.

Domestic equity funds continued to be sold off, with $308.7 million in redemptions, but that is much lower than the $607 million in redemptions that segment saw in April. Global & international equity pretty much halved its net redemptions, from $355.1 million in April, to $166.3 million in May.

This was the first month that RBC reported its assets with those of Philips Hager & North incorporated into the bank’s total. The acquisition was enough to boost RBC into the top spot as an asset manager, with just over $111 billion in AUM, compared to IGM Financial’s $108 billion.

Dynamic posted the strongest monthly inflows for long-term funds, pulling in $435 million in new cash, followed by Fidelity with $295 million in net inflows and RBC with $232 million.

Luukko points out that the top two companies reached the top spots through very different routes. Dynamic has found success amongst its stand-alone funds, relying on consistently strong investment performance to attract investors. Fidelity has been growing its assets largely through its packaged solutions, notably ClearPath.

“From the fund company marketing perspective, there’s more than one route to gain market share,” Luukko says.

AIM Trimark posted net long-term fund redemption of $559 million, while CIBC saw out-flows of $133 million. AIC posted net long-term redemptions of $112 million.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com

(06/16/08)

Steven Lamb