Money markets outsell long-term funds: IFIC

Money market funds were the top sellers in November, raking in $1.87 billion, while long-term fund sales took a hit, according to the latest data from the Investment Funds Institute of Canada.

Canadian and U.S. money market funds brought in $1.27 billion and $537 million respectively, while long-term funds saw net redemptions of $15.8 billion, or 2.4% of industry assets.

“Money market sales were strong in November,” said Pat Dunwoody, IFIC’s vice-president, member services and communications. “Canadians are still investing this month; however, they appear to be taking a wait-and-see approach, choosing to make the investment decision today and the asset allocation decision at a later date.”

This short-term boom can be largely attributed to the market turmoil the industry experienced over the past few months. The investment option has also been popular of late because any worry surrounding money markets holding asset-backed commercial paper has been quashed.

“For a time during the summer there were concerns about holdings of non-bank ABCP in money market funds,” says Rudy Luukko, investments fund editor at Morningstar Canada. “This was partly responsible for redemptions, or the wait-and-see attitude toward money markets, but that has blown over. So last month, money market funds were a temporary parking space for a number of investors.”

But money markets didn’t have just a successful November — over the past three months, the investment instrument has taken in $3.4 billion.

Long-term funds, however, saw $63.7 million in net redemptions over the same period, with equity funds and fixed income funds responsible for the most redemptions, at $320 million and $640 million respectively. Balanced funds, however, had $758 million in net sales, offsetting the losses.

Luukko isn’t surprised that balanced funds have been the top sellers, who are looking for more stability amid the current market volatility. “When the markets have been in a downturn and investors have been jittery, it’s no surprise the long-term funds that have held up best have been the balanced categories,” he says. “There’s a little less juice during up markets, but generally they show more resilience during these downturns.”

Despite the trouble long-term funds are having, year-to-date sales have been $29.9 billion. That’s the highest November-to-November period since 1998.

However, foreign equity funds haven’t been so lucky, with sales down $2.4 billion from this time last year and $1.2 billion from last month. Global equity funds saw $115 million in net redemptions.

“There seems to be something of a trailing off of new commitments to foreign equity funds,” says Luukko. “This is explainable partly because of the weak returns we’ve seen through 2007 year-to-date.”

Luukko points to Morningstar’s indexes as proof that not all is well with foreign equity funds. He says Morningstar Canada’s Equity Global Index is down 4.7% year-to-date, while Morningstar’s International Equity Index and the U.S. Equity Index are down 3% and 8.7% respectively.

It’s hard to say if long-term funds will make a comeback in the coming months, especially because economists expect the market volatility to continue, but, Luukko says, if anything, balanced funds should see increased sales.

“The recent market jitters are going to help this asset class continue to be favoured by investors over pure equity plays,” he says. “It’s not going to cut it for long-term investors to set aside an unusually high amount of money in money market funds.”

Filed by Bryan Borzykowski, Advisor.ca, bryan.borzykowski@advisor.rogers.com