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Mutual Fund News

Mutual funds rebound in July

Only second month of net sales in 15

INVESTMENT REPORTER

New mutual fund sales totalled about $300-million in July, a dramatic turnaround from June and only the second positive month of net sales in the past 15.

The last month of positive sales was in February, the Investment Funds Institute of Canada said. But analysts said sales for that month are typically bolstered by sales of registered retirement savings plans.

"This is the first time that net mutual fund sales have been positive since last RRSP season," said Tom Hockin, IFIC's president and chief executive officer.

The last month of positive sales not affected by the RRSP-selling season was April, 2002, analysts said.

IFIC estimates net sales for July could range from $100-million to $500-million, based on preliminary data from its members.

The preliminary July numbers represent a dramatic turnaround in Canadian mutual fund sales, said Peter Loach, managing director of mutual fund research at BMO Nesbitt Burns Inc.

That swing to positive sales would represent a huge move, compared with the $577-million decline in net sales during June and the $1.1-billion drop in net new sales in July, 2002, Mr. Loach said.

"Cash is definitely coming off the sidelines into these funds," he said. "Net sales have definitely turned the corner."

"It's probably a relief to the funds' industry," said James Gauthier, an analyst at Dundee Securities Corp. "All in all things are getting better."

For the first time in years investors will be getting positive returns on their quarterly statements, stock markets have stabilized while bond markets have been hit hard and the market outlook has changed to the stable-to-improving range from negative, Mr. Gauthier said.

A turnaround in July is somewhat surprising because typically it's a slow month and, added to that, sentiment has changed dramatically following the poor performance of the stock market in March and April, Mr. Loach said.

The demand for mutual funds should also improve in the future because the industry will be "dropping some horrendous [performance] numbers in 2000 and 2001" so the trailing numbers being reported will look better and attract buyers, Mr. Loach said.

The psychology of the market is important. Investors in mutual funds will begin to experience "seller's regret" rather than "buyer's regret" because fund performance is improving, he said.

During the past two to three months, Canadian equities have experienced double-digit returns. "Investors tend to look at trailing two- to three-month performance."

Redemptions are continuing in money market funds, but mutual fund investors are adding to their positions in long-term Canadian equity funds and global funds.

Income funds probably remained strong performers, Mr. Gauthier said.

Mutual funds operated by the Canadian banks also appear to have performed strongly. Investors in mutual funds operated by banks tend to be more active in moving money in and out of long-term funds, Mr. Loach said.

Total assets held by the mutual fund industry at the end of July are expected to increase 3 per cent or $12-billion to about $403-billion, according to IFIC. During the past four months the assets have increased $33-billion.

The best-performing fund groups included the mutual fund divisions of Canadian Imperial Bank of Commerce, Bank of Montreal and National Bank of Canada, which saw their net sales increase, respectively, by $178-million, $95-million and $80-million.

Fund groups continuing to show net redemptions included Investors Group Inc. with $114-million; AGF Management Inc., $152-million; Scotia Securities Inc., $93-million; and Fidelity Investments, $77-million.

© 2007 The Globe and Mail. All rights reserved.

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