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Mutual Fund News

Investors dump funds in June

Stock market rally does little to build confidence in equities

INVESTMENT REPORTER

A three-month rally in stock markets did little to bolster the confidence of rattled Canadian investors as they continued to yank money from Canadian mutual funds in June.

Net redemptions in June totalled about $600-million, according to preliminary results released yesterday by the Investment Funds Institute of Canada.

The net redemption figure could increase to $850-million or shrink to $450-million when final numbers are tallied later this month, says IFIC president and chief executive officer Tom Hockin.

If the estimate holds, the pace of the withdrawals is consistent with the net $637-million Canadians pulled from mutual funds in May.

So far in 2003, Canada's mutual fund industry has tallied only one month with net sales. That was February, at the peak of registered retirement savings plan season.

IFIC also estimated that net assets of the industry at the end of June stood in the range of $388-billion to $393-billion to edge up about 0.8 per cent from May's total of $387.7-billion.

Peter Loach, analyst at BMO Nesbitt Burns Inc., believes the fortunes of the mutual fund industry will likely improve. He says a runup in stock markets will help to raise the performances of mutual funds and calm nervous investors.

The broad measure of the U.S. market, the Standard & Poor's 500-stock index, rose 3 per cent in June and 14.9 per cent in the three months to June 30 to post its biggest quarterly gain in more than four years.

On Bay Street, Canada's benchmark S&P/TSX composite index gained 1.8 per cent in June and 10.1 per cent in the second quarter.

Mr. Loach says investors seem to be pulling the bulk of the cash from money market funds and international stock funds.

Money market funds are typically viewed as short-term parking spots for cash, so investors often tap into them to help finance a real estate purchase or renovation, Mr. Loach says.

He believes Canadians continue to redeem their international stock funds because markets have been rocky in the past three years and, more recently, the funds' performance numbers have appeared worse because of the strengthening Canadian dollar.

Meanwhile, Canadians who are putting money into mutual funds still appear to favour dividend and income funds.

"The strong are getting stronger," Mr. Loach said of companies, such as Guardian Group of Funds Ltd., which have benefited from the flight to safety.

Among Canadian mutual fund companies reporting results to IFIC for last month, Guardian Group posted net sales of $64-million. Phillips Hager & North Ltd. had net sales of $136-million.

BMO Funds reported net sales of $48-million, and National Bank Mutual Funds, $35-million.

Among those companies suffering heavy outflows last month were AGF Management Ltd. with net redemptions of $229-million, Fidelity Investments with net redemptions of $123-million, Investors Group Inc. with $129-million and RBC Funds Inc. with $130-million.

© 2007 The Globe and Mail. All rights reserved.

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