Foreign equity funds gaining popularity

There is growing evidence that Canadian investors are taking advantage of the foreign property rule abolition, as the monthly Investor Economics’ Insight reports increasing popularity for this category through the first four months of this year.

Mutual fund sales in general were positive in April, despite softer market performance, bucking the negative-flows trend of recent years for that month. Long-term investment fund assets gained 0.2% in April, with net sales of $2.2 billion, according to the latest issue of Insight. That makes this past April the strongest April since 2000.

The turnaround in the foreign equity categories accelerated, with net sales contributing nearly a quarter of total long term mutual fund net sales in April. Year-to-date net sales of $1.7 billion for the core international equity category places it directly behind the three sales leaders for that period — Canadian balanced, bond and equity dividend.

Fund firms are continuing to capitalize on the global investing theme, a trend that has been building since the elimination of foreign content restrictions last year. This month, Investors Group, Fidelity, Dynamic and Guardian all announced changes aimed at broadening their funds’ exposure to global markets.

The nine new funds that Insight reports opened for business in May reflect a split between those mandates which are currently in favour, and the growing shift toward international funds. Fidelity opened five new funds, all with a foreign flavour. National Bank also announced four new funds, all of which had a domestic income mandate.

“The international equity category posted $441 million in monthly net flows, well within striking distance of the leading asset classes,” Insight says, after factoring for higher reinvested dividend totals among the leaders. “At least part of this success was due to fund wrap portfolio rebalancing activity.”

Still, the success of the foreign theme has been concentrated amongst a handful of funds, according to Insight, with the big winner being the United Emerging Markets Equity Pool, after a rebalancing of the Optima Strategy wrap program placed $183 million in that pool.

Add in such long-standing star funds as Mackenzie Cundill Value, Fidelity NorthStar, RBC O’Shaughnessy International Equity and Dynamic Global Dividend Value, and these funds account “for more than 100% of the category’s net sales,” according to Insight.

Meanwhile, equity income fund sales were nearly cut in half, falling from $1.5 billion in March to $870 million.

Foreign bond funds, however, have not seen the same success as their equity counterparts. The above-mentioned rebalancing of Optima Strategy transferred $430 million from the United Global Fixed Income Pool, making up the bulk of the overall $530 million decline in category assets.

“The rising interest rate environment has been tough on the bond markets,” according to Insight. “In April, bond funds saw an estimated 1.2% market decline. This is the only category that has experienced a negative market impact on a year-to-date basis.”

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