U.S. investors getting back into funds faster than Canadians

(August 19, 2003) While U.S. investors have felt a fiercer bear market than Canadians, they’ve also been quicker to grasp the stirrings of a bull, according to research compiled by Investor Economics.

“U.S. long-term funds moved into the black this year while their Canadian peers have continued to suffer net redemptions,” Investor Economics says in its latest monthly Insight report.

American fund assets rose 11% over the first five months of 2003, while net inflows increased 2.1%. By comparison, Canadian fund assets and flows are flat to negative year-to-date, although net inflows did return to positive territory in July.

Investor Economics speculates that the divergence between U.S. and Canadian fund flows could be due to differences in asset mix. The U.S. has a much higher weighting in bonds, while Canada has a larger percentage of international equity and balanced funds.

“Those two categories were responsible for all of this year’s redemption woes. Canadians redeemed $2.9 billion this year from international equity funds and another $576 million from balanced funds,” Investor Economics says.

As well as the obvious size difference (long-term U.S. fund assets are 15 times the size of those in Canada and the average fund is nearly five times larger in terms of assets under management), there are some other important distinctions between the two fund markets.

Although Canadians are more likely to embrace funds than Americans — holding 20% of their discretionary assets in funds compared to the U.S. rate of 15% — U.S. investors are more likely to own stocks directly.

Related News Stories

IFIC confirms strong fund sales in July Tactical fund managers bullish on equities, analyst says

However, researchers at Strategic Insight in New York, which supplied the data for the Investor Economics study, report that U.S. investors, holding many stocks that are still underwater, are now likely to move to equity funds.

“Once equity confidence rebounds, many disenchanted investors still owning individual stocks, will shift into managed equity pools, mostly through equity mutual funds,” Strategic Insight says.

Another variation is the wrap market, which is older and more developed in the U.S. “This market likely holds a substantial amount of money that would otherwise be in long-term mutual funds,” the report says.

Also, Americans keep substantial amounts in money market funds that double as chequing accounts, a rarity in Canada.

---

Are Americans bouncing back quicker than Canadians? What other differences between the two markets could cause the recovery? Share your thoughts about this topic in the Talvest Town Hall on Advisor.ca.

Filed by Advisor.ca staff.

(08/19/03)