Survey suggests Canadians still value mutual funds

(January 23, 2004) Canadian investors continue to see the value of mutual funds, despite bad press from south of the border, according to a poll conducted for the Investment Funds Institute of Canada (IFIC).

Among households with incomes of $60,000 or more, the survey found 62% of respondents were likely to buy an equity-based mutual fund within the next five years. The study also showed that 49% of Canadian adults currently hold mutual funds.

“The reality is most people don’t have the time or confidence to choose individual stocks and bonds,” says IFIC president Tom Hockin. “Even when people do have time, they want to spend it on other more enjoyable past-times than reading annual reports or even business newspapers. Mutual funds give them the long-term benefits of the stock market without the headaches.”

The list of reasons cited for preferring mutual funds should be familiar to any financial advisor: funds are professionally managed, diversified, allow small amounts to be invested and the money is not locked in.

“Mutual funds provide people with a reliable, convenient and proven way to benefit from the growth in securities markets,” says Hockin. “Everyone can be a company shareholder and enjoy the returns.”

Hockin defends the nominally higher fees charged in Canada, compared to the U.S. fund industry, saying the increased foreign content in Canadian funds is one of the driving factors. U.S. funds can afford to invest domestically, given the importance of their equity markets, but Canadian funds face additional costs when they invest in the U.S.

Hockin also cites the GST, the fractured regulatory environment and the requirement for printed materials in both English and French as additional cost burdens.

Meanwhile, a report entitled RRSPs: Are Canadians saving enough? released by CIBC World Markets today said Canadians are shedding their aversion to risk, citing a $2.3 billion net inflow to mutual funds over the past six months.

Benjamin Tal, an economist at CIBC World Markets, says Canadians are sitting on $40 billion in cash since fleeing equities during the bear market. He points out that despite being urged to contribute to RRSPs throughout the year, Canadians still have a tendency to wait until February to make a lump sum contribution.

“If recent activity is any indication, a significant portion of new RRSP contributions in the first two months of 2004 will go into mutual funds,” Tal says in his report.

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