Canadians yanked almost $800-million from stock mutual funds in September, making it the worst month in at least a decade and indicating that investors are increasingly worried about the markets.
"It was a tough month," said James Gauthier, a mutual fund analyst at Dundee Securities Corp. "It looked like things were getting slightly better in August. However, the net redemptions we saw in September indicate that we still have a lot of work to do before things get better."
Mutual funds that invest in domestic, U.S. and foreign stocks, excluding reinvested distributions, had net redemptions of $773-million last month, the highest since data started being collected in January, 1991, by the Investment Funds Institute of Canada.
The total net redemptions for the month swelled to $1.1-billion, up from $100-million in August. This marked the sixth consecutive month that the industry has seen a large chunk of cash head out the door. But Mr. Gauthier said that figure represents only 0.3 per cent of the total industry assets.
Still, this pushed the six-month sales total to $5.3-billion, down from $19.7-billion at the same time last year.
The rush out of mutual funds in September came as talk of an attack on Iraq and a weakening U.S. economy sent stock markets plunging. During the month, the Dow Jones industrial average, a gauge of 30 U.S. stocks, fell 12.4 per cent, while Canada's benchmark S&P/TSX composite index slipped 6.5 per cent.
Breaking down the September figures further, Canadian equity funds had redemptions of $343-million. This was the fourth straight month investors pulled money out. Foreign and U.S. equity funds had a total outflow of $430-million.
"As a result of weakness in equity markets, 69.2 per cent of net redemptions for September were in equity mutual funds," noted Tom Hockin, IFIC's president and chief executive officer.
Money market funds were also caught in the undertow, as $399-million was redeemed. But dividend and income funds -- the most conservative type of fund beyond money markets -- were spared, having net sales of $123-million, slightly lower than August.
The month's redemptions came along with weak mutual fund performance, according to research firm Morningstar Canada.
For the sixth consecutive month, the mutual fund industry lost money. September saw 83 per cent of Canadian mutual funds lose money, with the median fund losing 5.4 per cent of its value. This fuelled a 10.9-per-cent third-quarter loss.
"I'm not surprised given the way equity markets have been reacting," said Rob Chang, an analyst at Morningstar Canada.
There were some funds that garnered positive median returns last month, including the foreign bonds funds, with a 2.6-per-cent median gain, and precious metals funds, which rang up 1.8 per cent.
"It's not Armageddon, but the ones that did do well, did it by default," Mr. Chang said.
Meanwhile, portfolio managers are moving into sectors that have been hit the hardest -- information technology, industrial and consumer discretionary -- and are looking for stocks that will lead in a recovery, Mr. Chang added.
But Mr. Gauthier at Dundee Securities said that it appears investors have given up on equity funds, preferring cash or guaranteed investment certificates.
Fund investors receiving their October statements may suffer from "statement shock," he said, leading them to redeem more.
Year-to-date sales plummet
Net new sales excluding reinvested distributions, $000
Jan.- Jan.- Fund type Sept., 2002 Sept., 2001 % changeBalanced $1,997,435 $1,640,543 +21.8% Canadian common shares 406,033 1,315,962 -69.1 Foreign common shares 884,603 2,542,615 -66.2 Bond and income 1,332,637 738,174 +80.5 Foreign bond and income 152,663 -470 +32,581.5 Dividend and income 2,068,097 979,894 +111.1 Mortgage -73,610 -135,373 +45.6 Real estate 63,225 3,437 +1,739.5 U.S. common shares 1,946,702 1,849,040 +5.3 Money market -3,068.657 9,825,477 -131.2 Foreign money market -388,428 978,939 -139.7 All funds $5,320,700 $19,738,238 -73.0%
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