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RRSP omen

Northwest Mutual Funds Inc. argues in a market newsletter that a poor registered retirement savings plan season, such as we have just had, "isn't always a bad omen." That isn't the conventional wisdom, Northwest notes, as many in the investment industry use the flow figures as a measure of success and therefore, see good inflows in January and February, the prime RRSP season, as creating momentum for the rest of the year and a poor season as "a sure sign of a long year." But Northwest looked back at the net flows into RRSPs in the key January and February RRSP season over the past 10 years and the corresponding performance in the S&P/TSX composite index in those years and found that good inflows don't necessarily correlate with above average performance in the market that year and low inflows don't always indicate a poor market. The average net flow into long-term mutual funds during the RRSP season in those 10 years was $11.55-billion. The season just ended saw net outflows of $559-million.

In four of those 10 years, net inflows were above average and the return on the S&P/TSX composite in those years averaged 5.2 per cent, a return that was down sharply from the immediately preceding year. In the remaining six years, where flows were below average, indicating that people were less confident about their investments, the average return was 13.6 per cent, Northwest said. "Investors who get caught up in what happened last year can sometimes neglect future prospects," Northwest said.

© 2007 The Globe and Mail. All rights reserved.

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