Mutual fund sales

(November 17, 2003) Mutual fund sales for October came in around the middle of the estimate range, according to the latest figures from IFIC. The fund industry assocation had predicted net new sales of between $300 million and $700 million. Actual net sales for the month came in at $455 million, the best performance since the peak of the RRSP season.

“Net sales of long-term funds were $815 million for the month of October, the highest since May 2002. This also marks the sixth straight month that net sales have been positive in the long term category,” said Tom Hockin, IFIC president and CEO. “Overall, October’s net sales are the best since February 2003, the height of RRSP season.”

The fund industry rang up total net sales of $719 million, including $264 million in reinvested distributions. Gross sales, before deducting redemptions, hit $9.3 billion. Assets under administration climbed 2.8% to $460.3 billion from $408.9 billion in September.

“All in all I think these numbers are decent,” says James Gauthier, mutual fund analyst at Dundee Securities. “It’s a continuation of a trend that we’ve seen — as far as equity funds being negative and income funds being highly positive — for quite some time. But I’m still surprised at how timid Canadian investors have been as far as moving money back into equities.”

While net sales may be climbing, Gauthier says the fund companies are not likely to be impressed with Canadian investors’ choice of funds.

“I don’t think fund companies are necessarily encouraged by more money going into income funds,” he says. “They definitely want to see it going into the equities because that represents the longer term, that’s where they get greater fees from. Although the trend is getting a little bit better, it still remains negative for equities.”

“Equity fund flows have been positive in the U.S. since March and it seems like Canadian investors aren’t catching on yet,” he says. “I think Canadian investors tend to be a little more timid, so right now what they’re doing is continuing to roll their money into income funds, waiting perhaps for longer term numbers to improve.”

Gauthier says Canadian investors are “dipping their toe” back into the equity market, buying funds holding conservative, dividend-yielding stocks and income trusts, but still largely shunning growth funds.

The most popular fund types were income generating funds, with “Bond & Income” and “Dividend & Income” fund sales topping $400 million each. Money market funds were sold off to the tune of $360 million, excluding reinvested distributions. Investors still hold $54.9 billion in money market funds.

Gauthier says that it is no surprise that investors continue to leave money market funds, since the yields have fallen to level that make even bank GICs relatively attractive. He says investors are likely rolling their money market fund investments into conservative equity funds.

This is the first IFIC report to reflect the merger of CI Funds with Synergy, a combination which resulted in a month-over-month gain of 8.2% in assets and the firm passing TD Asset Management for the sixth place ranking by assets.

Filed by Steven Lamb, Advisor.ca, slamb@advisor.ca