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Mutual Fund News

Mutual fund sales take nosedive

IFIC estimates net redemptions might have been about $100-million in May

MUTUAL FUNDS REPORTER; With a file from reporter Caroline Alphonso

TORONTO -- Mutual funds sales plunged in May as investors fled rocky stock markets and bailed out of money market funds for better returns elsewhere.

The Investment Funds Institute of Canada said in its monthly estimate of fund flows that net redemptions might have been in the range of $100-million last month, compared with $1.9-billion in net sales in May a year ago. It would be the first time the industry has had two consecutive months of net outflows since 1995.

The best-case scenario would be $300-million in net sales, the IFIC said.

"The whole problem is with markets right now," said Peter Loach, a mutual fund analyst with BMO Nesbitt Burns Inc.

"Markets have been drifting lower and have been somewhat volatile on certain days."

The S&P/TSX composite index was flat last month for a year-to-date gain of 0.2 per cent. The Standard & Poor's 500 index slipped by 0.9 per cent in May for a year-to-date loss of 7.1 per cent.

Bank-owned fund companies are also having a tough time because they have a lot of assets in money market funds that are being redeemed, Mr. Loach said.

Financial services consultant Dan Richards of Toronto-based Strategic Imperatives agreed that market jitters are spooking investors.

"Mutual funds are going to continue to struggle until . . . we get sustained positive movement in the stock market that gives the consumer confidence that they want to be in stocks or until we are through the period of interest rates increasing," he said.

Money market funds are attractive when interest rates are falling but are relatively unattractive when rates rise and investors can find better returns in treasury bills or guaranteed investment certificates, he said.

Among the bank-owned fund companies suffering from net redemptions last month, TD Asset Management Inc. saw outflows of $290-million, followed by Scotia Securities Inc., $126-million; CIBC Securities Inc., $100-million; HSBC Asset Management Ltd., $11-million.

Banks that bucked the trend in May included RBC Funds Inc. with net sales of $45-million and BMO Mutual Funds Inc., $39-million.

Among other fund companies, AGF Management Ltd. suffered net redemptions of $172-million last month, with most of the cash leaving funds run by Brandes Investment Partners LLP. Brandes announced this spring that it plans to leave AGF to start a rival fund company in Canada.

AGF chief executive officer Blake Goldring attributed the net outflows to uncertainty about markets and who would replace Brandes on its funds.

AGF yesterday selected Harris Associates LP to replace Brandes on most of its funds.

Other companies suffering from net outflows last month included Altamira Investment Services Inc., which posted net redemptions of $57-million; C.I. Fund Managment Inc., $57-million; and AIC Ltd., $15-million.

Among fund companies that brought in new money last month, AIM Funds Management Inc. took in $344-million in net sales. ClaringtonFunds Inc. attracted $99-million; Phillips Hager & North Ltd.,$97-million; Investors Group Inc., $46-million, and subsidiary Mackenzie Financial Corp., $35-million; Talvest Fund Managment Inc., $20-million; Elliott & Page Ltd., $13-million; StrategicNova Mutual Funds Inc., $11-million; Fidelity Investments Canada Ltd., $9-million; and Mavrix Funds Ltd., $2-million.

© 2007 The Globe and Mail. All rights reserved.

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