Soaring markets didn’t help fund sales in 2003

(January 15, 2004) The mutual fund industry posted stellar gains in 2003, but that did not help their sales, according to reports from Morningstar Canada and IFIC.

All but one of Morningstar’s 35 fund indices, representing 97% of funds available in Canada, finished December in the black, riding the international recovery in equity markets. For the full year, 94% of funds were in positive territory.

The laggard for December was the precious metals fund index, but considering the strong gains made in gold over the previous 11 months, it was time for the index to fall back. The index still finished the year in the top spot, with gains of 46.9%.

Rounding out the top three performing indices were natural resources and Latin American funds, with gains of 33.4% and 31.3% respectively.

Asset value for the industry rose 12.1% to $439 billion, a gain of $47.5 billion.

But despite the strong gains posted by the fund industry and the rise in North American equity markets, investor enthusiasm remained tepid.

R elated Stories

Net fund sales top $500 million in November Mutual fund sales “best since February”

“This is the eighth consecutive month of positive sales in long-term funds,” said Tom Hockin, IFIC president and CEO. “Strength in the financial markets throughout 2003 has propelled the industry’s assets to $439 billion, the second highest figure ever for the industry. In 2003, long-term funds increased 16.1% or $53.4 billion from the previous year, the highest annual gain since 1999.”

December was the strongest month for new sales, but this is measured against a year marked by net redemptions, as investors cashed out of their funds earlier in the year.

Gross sales for all funds (including money markets) in December rang in at $10.6 billion. But net new sales totalled only $1.1 billion, with reinvested distributions adding another $1.8 billion, for a total of $2.9 billion in net sales. Redemptions ate up the rest.

The return to mutual funds has shown a strong investor preference for income-bearing funds, with bond income and dividend income funds leading the pack with net sales of over $4 billion. Balanced funds made up a further billion dollars in net sales.

Meanwhile funds based on Canadian common shares and foreign common shares were hit by redemptions of $2.3 and $2.4 billion respectively on the year.

“The numbers are beginning to sound like a broken record,” says James Gauthier, mutual fund analyst at Dundee Securities. “Heavy inflows to the bond income and dividend income funds and redemptions on the equity side. Equity funds have seen redemptions for 19 consecutive months with aggregate redemptions of $7.6 billion.”

Over the same period, income funds — including dividend, bond, foreign bond and mortgage funds — have had positive inflows of $9.9 billion.

Gauthier points out that dividend income funds are themselves largely made up of equities, as well as income trusts, so it is not entirely accurate to say investors are wary of the equity market altogether.

“The numbers suggest that much of the Canadian populace is becoming more eager to put their dollars to work,” he says. “However, there remains an overall aversion to what is perceived to be risky. I think investors perceive pure equity funds to contain a lot of risk. They’re willing to move in, but they want to go in one step at a time.”

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com

(01/15/04)

Steven Lamb