Canadians pulled $380-million from their mutual funds in September, in a sharp reversal of the summer upswing that saw fund companies post two solid months of gains.
Last month's dramatic outflow, which refers to the fund industry's net sales excluding reinvested dividends, was more than the preliminary estimate released earlier this month suggested.
At that time, the Investment Funds Institute of Canada braced its members for $150-million in net redemptions, though the industry group said the final tally could rest between net sales of $50-million and net redemptions of $350-million.
Erwin Go, manager of statistics for IFIC, said the outflow was worse than expected because a late report from CI Mutual Funds Inc. was not included in the preliminary estimate.
IFIC president and chief executive officer Tom Hockin said all of the net redemptions last month could be attributed to an $885-million outflow from money market funds.
He also pointed out that net sales of long-term funds - which include stock, bond and income funds - came to $504.9-million in September. That marks the highest level for long-term funds sales since February and the fifth consecutive month in which those funds have recorded net sales.
IFIC said total assets under management dipped 1 per cent in September, to $408.9-billion from $412.9-billion in August. But assets rose 7.3 per cent in September compared with the same month last year.
Canadian stock funds suffered $166.9-million in net redemptions, while funds that invest in foreign common shares were hit with $204.3-million in net redemptions.
For the year to date, net redemptions for all funds have totalled $2.7-billion.
September's big outflow contrasts with net sales of $321-million in July and $304-million in August.
James Gauthier, mutual fund analyst at Dundee Securities Corp., said a six-month rally in stock markets that started in mid-March appears to have done little to shore up investor confidence.
He believes fund investors are likely looking at one-year and three-year performance numbers, which are still dismal for many stock funds. Longer-term numbers for bond and income funds appear stronger in comparison, drawing investors to those conservative asset classes, he said.
'People have always been, and I'm sure will continue to be, performance chasers,' he said.
The analyst added that Canadians have pulled $6.7-billion from Canadian, foreign and U.S. equity funds combined since June, 2002. But $6.8-billion in new money has been pumped into bond and income and mortgage funds over the same time period, he noted.
Mr. Gauthier believes Canadian investors will need to see strong performance numbers for at least one year before they regain their mettle.
He noted that, until Aug. 30, investors had pushed equity fund flows in the United States into positive territory every month since March. September figures south of the border have not been reported yet.
'Canadian investors are behind the pack, clearly. The new money has missed out on the rally.'
Peter Loach, analyst at BMO Nesbitt Burns Inc., said September's numbers were made worse by some big fund companies imposing restrictions and taking other measures to discourage hedge funds from frequently buying and selling large amounts of mutual fund assets in an attempt to time the market.
But Mr. Loach said he is encouraged by the five months of net sales in long-term funds.
'That's a great trend for sure.'
Mutual fund sales down
Year-to-date net new sales to Sept. 30, excluding reinvested distributions, $'000
Fund type 2003 2002 % change Balanced $324,217 $1,997,435 -83.8% Canadian common shares -1,753,905 406,033 -532.0 Foreign common shares -2,021,225 884,609 -328.5 Bond and income 2,848,257 1,332,637 +113.7 Foreign bond and income 210,571 152,663 +37.9 Dividend and income 2,580,143 2,068,097 +24.8 Mortgage 23,614 -73,610 +132.1 Real estate 62,578 63,225 -1.0 U.S. common shares 129,066 1,946,702 -93.4 Money market -4,793,697 -3,088,657 -56.2 Foreign money market -310,110 -388,428 20.2 All funds -$2,700,491 $5,320,700 -150.8%
SOURCE: INVESTMENT FUNDS INSTITUTE OF CANADA
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