Rising markets fuelled fund sales, assets in 2005

December capped off a banner year for mutual funds in Canada. Strong financial markets and a corresponding increase in sales helped the industry post its largest ever annual increase in assets.

Industry assets rose nearly 15% to $570 billion last year, up from $497.3 billion in 2004. The 2005 Review of Annual Mutual Fund Statistics, released today by IFIC, also shows that net sales for the year increased nearly 60% compared to the year before to $23.4 billion, the highest for the industry since 2001.

Net new monthly sales topped $1 billion 10 times last year, IFIC noted, including December’s total of $1.7 billion. Overall, total assets under management in December increased 2.5% from November. Gross sales for the month, including money market funds, totaled $12 billion.

“During 2005 Canadian investors paid a lot of attention to the risk side of the equation, more so than to the return side,” says Rudy Luukko, investment funds editor at Morningstar Canada. “The prevailing sales trend toward income-producing longer term funds remained intact in December as it was all year.”

Canadian dividend funds were top sellers by CIFSC category during the year, with $7.6 billion in net new sales, excluding reinvested dividends. It was also the second most popular category in December, with $505 million in net new sales. Canadian balanced funds came in second place for the year with $7 billion in net sales, the fourth highest category in December, reporting $338 million in net new sales. Canadian bond funds, the most popular category during the month of December with $529 million in new sales, came in third place overall in 2005 with $6.3 billion in net sales for the year. Canadian income balanced funds reported $4.8 billion in new sales for the year and $489 million in net new sales for the month of December.

Despite the fact investors appeared to be somewhat risk averse in their investment choices, money market funds reported the worst sales numbers for the year. Overall, money market investments suffered $409 million in net redemptions in December and $2 billion in net redemptions for the year.

Although the Canadian income trust and Canadian dividend categories enjoyed strong sales, in line with healthy returns, the top performing asset categories were still weaker in terms of popular demand.

The Morningstar index for Canadian equity funds returned 17.4% during the year, but despite this, it was the most redeemed category of funds in 2005 with $2.6 billion in net redemptions for the year.

By industry, natural resources funds returned 44.7% during the year, according to Morningstar. But despite being ranked number one for performance, the category came in 10th place for sales. Similarly, emerging markets funds generated 28.4% in returns, but came in 15th place in the sales and popularity contest.

“This is somewhat to be expected because these are both aggressive, specialty types of categories. However, there were also some mainstream categories that had some pretty decent investment performance but did very poorly sales wise. None more so than Canadian equity,” says Luukko.

Global equity funds meanwhile suffered $1.7 billion in net redemptions for the year and turned in a relatively flat $21 million in new sales during the month of December.

Among fund companies, leaders for the month of December were RBC Asset Management with $435 million in new sales, TD Asset Management with $344 million in net new sales and Mackenzie Financial with $293 million in net sales.

Laggards last month included CIBC Asset Management, with $257 in net redemptions, largely as a result of redemptions from the company’s institutional CIBC Premium T-Bill Fund. That and the company’s money market fund make up $245 million of the company’s total reported redemptions for the month.

Scotia Securities was the second biggest decliner, according to IFIC, with $162 in net redemptions. The company says the number does not accurately reflect Scotia’s position since it does not account for fund of fund sales.

AIM Trimark suffered $135 in net redemptions during the month. Luukko says the number is partly product related. The company is particularly strong in foreign equity investments and Canadian equity investing, both of which were largely out of favour at the end of 2005.

“I see it as a reflection of their product mix and broader trends in the marketplace as opposed to anything specifically being wrong with the company,” says Luukko. “That said, their portfolios have generally been underweight in energy, the hottest performing sector and they have paid a price for that in terms of shorter term investment performance.”

Finally, AIC reported $131 in net redemptions for the year, while AGF Funds reported $53 million in net redemptions, a significant improvement from the $246 million in net redemptions reported in December 2004.

Filed by Kate McCaffery, Advisor.ca, kate.mccaffery@advisor.rogers.com

(01/16/06)

Kate McCaffery

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Kate McCaffery

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