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Mutual fund redemptions slow down

Spring stock rally helps stem outflow

INVESTMENT REPORTER

Canadians continued to drain money from their mutual funds last month, but the pace of the outflow slowed as a spring rally in stock markets helped to shore up investor confidence.

Net redemptions in May totalled $700-million, according to preliminary estimates released yesterday by the Investment Funds Institute of Canada.

Tom Hockin, IFIC president and chief executive officer, said yesterday that the final figure for net redemptions, to be issued later this month, could range from $500-million to $900-million.

But if the estimate holds, May will show a 57-per-cent decline in net redemptions from April's brutal tally.

In April, Canadian investors pulled a net $1.6-billion out of funds, marking the largest net redemption for any month in more than 10 years.

Peter Loach, an analyst at BMO Nesbitt Burns Inc., believes more buoyant markets have sparked some optimism among investors.

"I think confidence is definitely improving."

In Toronto, the S&P/TSX composite index added 4.2 per cent last month.

The Standard & Poor's 500-stock index, a measure of the broad U.S. market, advanced 5.1 per cent in May, while the Dow Jones industrial average -- a gauge of 30 blue-chip stocks -- gained 4.4 per cent.

The Nasdaq Stock Market's composite index rose 9 per cent in May. Markets in London, Mexico and Brazil also gained.

Mr. Loach said the global trend of rising stocks helped to lift many funds to double-digit gains.

And, despite the net redemptions, IFIC estimated that the runup helped boost net assets of the fund industry to between $385-billion and $390-billion at the end of May, a rise of about 2.1 per cent from the previous month's total of $380.2-billion.

May marks the 13th time in the past 14 months that Canadians have taken more money out of mu tual funds than they put in. February, which is part of the all-important RRSP season, was the one exception, with net sales of $485.2-million.

Mr. Loach believes the final breakdown will show that most of the money flowing out in May came from money market funds.

He said Canadians are still plowing money into conservative vehicles such as guaranteed investment certificates.

But, the analyst said, the more positive tone in May suggests that investors may finally feel the worst is over in stock markets.

"I think people are realizing that, going forward one year, most of the downside is probably gone."

Among the companies reporting to IFIC yesterday, RBC Funds Inc. suffered net redemptions of $207-million in May, Scotia Securities Inc. had net redemptions of $151-million and AGF Management Ltd., $140-million. Fidelity Investments reported net redemptions of $127-million and Investors Group Inc., $113-million.

Among those companies in the black, Dynamic Mutual Funds had net sales of $96-million and TD Asset Management had net sales of $50-million.

© 2007 The Globe and Mail. All rights reserved.

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