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Mutual fund firms rake it in

Net sales total $5-billion in February

Canada's mutual fund companies raked in $5-billion in net sales in February, marking the best RRSP season since February of 2000 and raising hopes that a recovery in Canadian equity fund sales is at last under way.

Investors steered a net $554-million of that total into Canadian stock funds to put that group into positive territory for the second straight month, according to the Investment Funds Institute of Canada (IFIC). The net sales followed 19 consecutive months of net outflows from Canadian stock funds.

" It looks like equity fund flows have finally come out of their malaise," said analyst James Gauthier of Dundee Securities Corp..

He adds that investors have seen some equity funds post gains of between 30 and 50 per cent in the past year.

" What they're doing -- as investors often do -- is hopping on the latest fund," Mr. Gauthier said.

The money flowing into equity funds also suggests that investors are finally branching out beyond funds that invest in bonds, income trusts and dividend-paying securities, which many investors perceive as less risky investments than common stocks.

Mr. Gauthier notes that investors were most bearish in March of 2003, which would have been precisely the right time to buy.

"If you invested in March of '03 in the stock market, you'd be much better off today."

He adds that it's "somewhat disappointing" to see investors chasing performance. The S&P/TSX index rose 3.1 per cent in February.

Total mutual fund sales for the first two months of 2004 totalled $6.9-billion, excluding reinvested dividends, compared with sales of only $16-million in the same period last year, noted Tom Hockin, president and chief executive officer of IFIC.

George Vasic, a strategist and chief economist at UBS Securities Canada Inc., called the net sales of Canadian equity funds "moderate." He notes that February sales in that category ranked only eighth for that month in 11 years.

Mr. Vasic notes that investors preferred U.S. and foreign equity funds to domestic funds. Net sales for foreign common share funds came to $518.2-million, while net sales for U.S. common share funds totalled $292-million.

He added that the overwhelming preference, however, continues to be for income-generating products.

Net sales for bond and income funds came in at $1-billion, while net sales for dividend and income funds came to $1.2-billion.

Those figures stand in stark contrast to those in the United States, says Mr. Vasic, where investors continue to buy equity funds and send only marginal amounts into bond funds.

Money market funds saw a net inflow of $42.3-million. Mr. Vasic called that figure "paltry," following 17 consecutive months of outflows totalling $7.8-billion from money markets.

Stéfane Marion, an assistant chief economist at National Bank Financial, notes that the combined assets of U.S. mutual funds rose to a record $7.5-trillion (U.S.) in January.

Net sales stood at $30-billion in January, with a whopping $43.8-billion going into equity funds. Cash, on the other hand, remained out of favour with U.S. investors, with a $20-billion outflow.

IFIC also reported that the industry's total assets under management increased to $466.2-billion (Canadian) at the end of February from $451.6-billion in the previous month.

Assets have swelled 24.3 per cent from last February's figure of $375.2-billion, IFIC said.

Mutual fund sales escalate

Year-to-date net new sales to Feb. 29, excluding reinvested distributions, $'000

Fund type/2004/2003/%change

Balanced..................$1,394,894......158,523......+ 779.9%

Canadian common shares...623,317...- 388,963......+ 260.3

Foreign common shares.....442,323...- 499,779......+ 188.5

Bond and income..........1,866,025......677,835......+ 175.3

Foreign bond and income...139,868.......29,185......+ 379.2

Dividend and income......1,930,598......451,911......+ 327.2

Mortgage.....................115,082......- 4,369.....+ 2,734.1

Real estate....................14,699........28,495........- 48.4

U.S. common shares.......370,641........65,254......+ 468.0

Money market................58,499....- 497,832......+ 111.8

Foreign money market....- 96,940........- 3,641...- 2,562.5

All funds......................$6,859,006...$16,619... 41,172.1%

SOURCE: INVESTMENT FUNDS INSTITUTE OF CANADA

© 2007 The Globe and Mail. All rights reserved.

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