Mutual fund sales improve from August

The Canadian mutual fund industry was back in black in September, turning sales around from a miserable August, which saw net redemptions totaling $1.5 billion.

According to the Investment Fund Institute of Canada’s monthly mutual fund update, net sales in September were at a healthy $994 million in total sales over all, with $666 million in long-term fund sales and $328 million flowing into money market instruments. Total mutual fund assets under management increase 0.8% to $701.4 billion.

“The increase in assets was a combination of both new inflows and market appreciation,” say Rudy Luukko, investment funds editor at Morningstar Canada. “Investors and their advisors, to their credit, continue to be looking at a long-term horizon … and that’s as it should be.”

But while the 0.8% increase is positive, it’s not time to celebrate just yet, considering the number is still $2 billion below July’s total net sales.

Luukko says people shouldn’t read too much into the minimal upswing, and that the numbers will only grow as we near peak buying season. “We came off a difficult summer for the equity markets,” he says. “What we can expect to see is probably a further seasonal related pick up in sales as the year goes on and as we get closer to the peak RSP selling months. Of course, this is assuming we don’t have other severe market shocks.”

A major source of net sales in September came from mutual fund-of-funds, which represented sales of about $890 million, while stand-alone funds pulled in just $105 million in new money. The reason for the wide disparity between the two fund options, says Luukko, is because investors want the one stop shop experience. He adds that this might not be the best way to purchase funds.

“Taking an à la carte approach to choosing funds, particularly if you have a larger portfolio, can enable you to achieve greater customization and to suit your individual needs,” he says. “As well, you can cherry-pick among the very best managers which no individual company would have a monopoly on.”

Still, he sees the huge sums that fund-of-funds are bringing in, and points out that Morningstar has “stepped up our analyst coverage on fund-of-funds and similar products.”

Another area that saw an increase was money market funds. In August, the negative reaction over asset back commercial paper forced money markets into net redemptions of nearly $900 million. In September money markets had $328 million in net new sales, proving that some of the market chaos that plagued the industry in the summer has subsided. “It’s fair to say that there’s some restoration of confidence in that segment,” says Luukko.

But the money market’s problems aren’t over just yet. Luukko points out that the National Bank had $104 million in net redemptions from money market funds, and that the bank was among the “most prominent sponsors of money market funds that had held exposure to non-bank ABCP.”

Still, Luukko says the redemption figures are “much reduced” from August.

The report also mentions that global asset classes were responsible for the majority of net sales with $843 million, while domestic asset classes were in net redemptions of $325 million. What’s interesting is the rising loonie didn’t impact the purchase of global funds, despite having some currency effects.

“Generally, most foreign equity funds are unhedged so there would have been a divergence there,” says Luukko. “Nonetheless, investors continue to express preference for the foreign category of equity and balanced funds despite the negative impact in the short term of the soaring Canadian dollar.”

It’s not all good news for the mutual fund industry, though. Domestic equities and domestic fixed income both wound up in the red in September with $333 million and $108 million, respectively, in net redemptions. U.S. equity also had negative sales of $70 million.

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