Mutual funds post strong sales, performance in August

(September 15, 2003) Canadian investors continued to sock their savings away in mutual funds in August. For the second consecutive month, the fund industry enjoyed positive sales, according to the latest update from IFIC.

Net sales topped $304 million last month, with an additional $294 million in distributions reinvested. In July, net sales reached $321 million.

“Assets in the industry continue to make significant strides rising $10 billion in August to $412.9 billion,” said Tom Hockin, IFIC’s president and CEO. “Within the last five months alone, the industry has increased a total of $43.5 billion or 11.8%.”

Hockin points out that net sales have benefited from a dramatic drop in the level of money market redemptions, from a high of $1.3 billion in April to just $66 million last month.

“The trend is still strong with net new sales to long-term,” says Peter Loach, vice president and managing director of mutual fund research at BMO Nesbitt Burns. “The real swing factor here is that the redemptions in the short term have stemmed, that’s what’s driving the positive net sales.”

The recent upturn in the markets has been pulling in money as well, according to Loach, as investors chase returns the markets have already posted. He says investors are focusing more on recent performance than on historical gains.

“In the mid- to late-nineties it was the two and three year number that used to drive a lot of net sales, but now the focus is far more short-term,” Loach says. “When you take a look at the broader U.S. equity performance, you have big six-month numbers and decent one-year numbers, so that improves confidence.”

Fund performance was also mostly positive for the month, with Morningstar Canada reporting 86% of funds making money in August. The leaders were gold and precious metal funds, with this sector gaining 18.5%, as investors searched for a safe haven outside of bonds.

“Investors are wary of bonds because of the massive cash liquidity created by the U.S. Federal Reserve, the perception that rates are not likely to move any lower in the near term, and the looming U.S. government bond supply to finance its ongoing war against terrorism overseas,” said Gareth Tingling, Morningstar Canada’s manager of fund research.

Following the gold funds were Asia-focused funds, as Japan’s Nikkei and Hong Kong’s Hang Seng added 8% and 7% respectively to their year-to-date performances in August. Morningstar’s Japanese equity fund index posted a gain of 9.2% on the month.

The Morningstar report said the key Canadian equity fund index gained 2.8%, down 1% from its July performance of 3.8%, while the Canadian dividend index gained 1.6% after rising 2.2% in July.

Fixed income and money market funds were among the weakest performers, as the bond market weakened. The worst performing index, however, was equity-based, as the Morningstar healthcare fund index posted a loss of 3.2%.

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