Investment companies have recorded back-to-back net monthly redemptions for the first time in seven years as jittery investors yank their money out of mutual funds.
Net redemptions totalled $3.7-million in May, a sharp turnaround from sales of $1.9-billion scored in the same month last year, but a vast improvement from April, when Canadians withdrew $262.6-million from mutual funds, according to Investment Funds Institute of Canada.
"The weak equity market is the underlying driver behind it," said BMO Nesbitt Burns mutual fund analyst Peter Loach. "Money is also sitting on the sidelines and not moving anywhere."
The S&P/TSX composite index was flat in May, for a meagre year-to-date gain of 0.2 per cent. The Standard & Poor's 500 index was off 0.9 per cent last month, for a year-to-date loss of 7.1 per cent.
Money market funds -- including Canadian and global -- were the biggest losers, with net outflows of $844.5-million. "The huge redemptions came from the bank money market products," Mr. Loach said.
TD Asset Management Inc. had net redemptions of about $290-million, followed by Scotia Securities Inc., $126-million; CIBC Securities Inc., $100-million and HSBC Asset Management Ltd., $11-million.
Mr. Loach suggested investors are plowing that cash from money market funds into everything from slightly higher-yielding treasury bills and other short-term bank-guaranteed investment certificates to real estate.
But some of the cash from money market investments is still flowing into other fixed-income funds that have more risk but higher yields.
The top-five-selling mutual funds in May were the BMO Monthly Income Fund, the Trimark Fund, Trimark Income Growth Fund, Ivy Foreign Equity Fund and the Clarington Canadian Income Fund, Mr. Loach said.
The conservatively managed Canadian balanced funds emerged as the category leader in May, attracting $256.5-million in new money, followed by dividend funds with $244.7-million.
Toronto-based AGF Management Ltd., Canada's seventh-largest fund company, had net redemptions of $172-million in May, with a chunk of cash leaving funds run by San Franciso-based Brandes Investment Partners LLP.
Brandes is leaving AGF to start its own rival Canadian fund company this summer, and AGF recently appointed Chicago-based Harris Associates LP to replace Brandes on most of its funds later this month. AGF had net redemptions of $177-million in its Brandes funds during April and May, Mr. Loach said.
George Vasic, strategist and chief economist at UBS Warburg Inc., suggested that net redemptions of nearly $4-million in May may seem to indicate investor capitulation, but "the opposite appears to be closer to the truth," as investors still put $841-million in "long-term" stock and bond funds.
Year-to-date sales drop
Net new sales excluding reinvested distributions, $'000
Jan. - Jan. - Fund type May, 2002 May, 2001 % change Balanced $2,144,236 $1,434,358 +49.5 Canadian common shares 1,481,769 1,415,120 +4.7 Foreign common shares 2,002,860 2,465,862 -18.8 Bond and income 1,292,675 827,604 +56.2 Foreign bond and income 292,945 34,224 +756.0 Dividend and income 1,524,813 683,735 +123.0 Mortgage -18,273 -123,443 +85.2 Real estate 30,963 810 +3,722.6 U.S. common shares 1,658,669 1,288,710 +28.7 Money market -1,597,867 5,629,237 -128.4 Foreign money market -57,794 630,507 -109.2 All funds $8,754,886 $14,286,724 -38.7%
SOURCE: INVESTMENTS FUNDS INSTITUTE OF CANADA
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