Poor fund performance won’t deter buyers, says research firm

(November 5, 2003) Conventional wisdom holds that as mutual fund performance improves, so do their sales — and conversely sales dry up, when performance tanks. But according to data from Investor Economics, this should not be taken as the gospel truth.

In 2002, mutual fund assets shrivelled in Ontario by 11.4% or just over $21 billion, but at the same time net inflows were 2.3% of total funds. This was not an isolated anomaly, but played out across the country, with the average regional decline in investment fund assets falling 10.3%, but new cash accounting for 2.2% of beginning assets.

Then in 2003, as the markets heated up, fund sales cooled compared to 2002. Year-to-date asset growth across the country by June 2003 reached 0.8%, yet net new money only made up 0.2% of beginning assets.

In a regional comparison, Investor Economics also found that Manitoba and Saskatchewan pour the highest proportion of investable assets into investment funds, with funds holding 41% of Prairie wealth. Ontario came second, with 32.8%, while the rest of the country ranged between 22% and 26%. The national average for 2002 was 27.8% of wealth.

The study also compared the provinces’ mutual fund holding to segregated fund holdings as a percentage of the national total. In most provinces the difference was either in favour of mutual funds or the difference was negligible.

But in Quebec, investors appear to be more conservative, with the province’s share of seg funds outweighing mutual funds by nearly 50%. By June of this year, Quebec held 22.8% of the country’s segregated fund assets, but only 14.8% of the country’s mutual fund assets.

At the same time, Quebec investors also appeared to have an aversion to investment funds in general, ranking dead last among the regions for fund assets per household, with an average of just $17,493. Atlantic Canada was little better, with $17,737 per household invested in funds.

The national average was $27,411 invested per household, with Ontario and the Prairies taking the top spots, with $35,420 and $31,717 respectively.

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