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Mutual Fund News

May sales fall $267-million short of estimate

Industry group cites clerical reporting mistake for earlier incorrect figure

MUTUAL FUNDS REPORTER

Canadian mutual fund sales in May fell $267-million short of the industry's initial estimate, the Investment Funds Institute of Canada reported yesterday. IFIC attributed the earlier incorrect figure to a clerical reporting error.

The Toronto-based mutual fund association reported May net sales of $533-million yesterday. The results are well below the initial June 2 preliminary forecast for the month of about $800-million and short of IFIC's broader estimate of between $600-million and $1-billion in net new sales.

IFIC attributed the shortfall to the receipt of wrong preliminary data from BMO Investments Inc., the mutual fund arm of Bank of Montreal.

Two weeks ago, IFIC estimated BMO would report $323-million in May sales. Yesterday, the BMO results slipped to $212-million. The BMO unit manages about $18.1-billion in assets.

"BMO had given us the wrong estimate for their net sales. It was pretty significant between, about $160- to $170-million that should not have been included. They realized there was a mistake," said Erwin Go, IFIC's manager of statistics.

BMO spokeswoman Joanne Hayes said the "miscalculation was due to human error" and, once realized, was corrected with IFIC.

Several industry sources said the gaffe calls into question the value of releasing preliminary sales figures.

"I think it's gotten sloppy," said one Toronto mutual fund executive, who's an IFIC member. "Preliminary numbers don't work. People just throw in a number and sometimes it's right and sometimes it's wrong."

Despite the error, yesterday's results confirm that mutual funds are continuing to gain ground after a long period of redemptions in 2002 and 2003. The May figures mark the eighth consecutive month of positive gains for the sector.

"Sales of long-term funds for the first five months of 2004 were $12.2-billion, representing over 95 per cent of all sales for the industry," Tom Hockin, IFIC president and chief executive officer, said in a statement. Assets under management totalled $473.7-billion at month end, up 22.2 per cent from May last year.

But equity funds continued to fall from favour. Canadian stock funds reported $245-million in net redemptions last month. Some of the largest redemption rates were posted by stock funds managed by mid-tier players AGF Funds Inc., AIC Ltd. and Fidelity Investments.

Investors who bought equity funds in the mid-1990s are now leaving mediocre performers, said Peter Loach, an analyst at BMO Nesbitt Burns. Lengthy deferred sales charges are coming to an end and unit holders are looking for a better return, he said.

"The assets are very, very non-sticky [liquid] and they are bleeding. I can't see that stopping in the near future," Mr. Loach said.

Conservative mutual funds were May's big winners. Bond and income funds reported $277.9-million in net new sales, while balanced funds, a group that includes popular income trust funds, saw $155.5-million in net new sales.

"We saw some risk aversion in May," said Dwayne Dreger, vice-president of communications at AIM Funds Management Inc. "People are continuing to put the majority of their money into relatively conservative investments."

For example, AIM reported $23-million in May redemptions but had $96.5-million in new investment pour into its conservative Trimark Income Growth Fund.

Like the U.S. investment community, Canadians poured money back into equity markets in the first few months of this year but have since retreated, said Eric Frape, vice-president of product management at Toronto's ClaringtonFundsInc.

"Its a very fickle market and people are still a little uncertain," he said. Clarington's assets under management rose 1.1 per cent to about $3.7-billion in May. The Toronto firm's blue-chip Canadian Dividend Fund was its best seller, reporting $20-million in net new sales last month.

Mutual fund sales increase

Year-to-date net new sales to May 31, excluding reinvested distributions, $'000

Fund type.......................2004.............2003............% change

Balanced........................$2,913,374.........$58,913......+4,845.2%

Canadian common shares.........427,603.......-948,454.........+145.1

Foreign common shares............368,342....-1,176,575..........+131.3

Bond and income.................3,709,609......1,525,563.........+143.2

Foreign bond and income...........271,153.......104,775..........+158.8

Dividend and income.............3,649,455......1,013,003..........+260.3

Mortgage.............................307,800.......-31,382........+1,080.8

Real estate............................-56,396........52,144...........-208.2

U.S. common shares.................597,240.......34,928........+1,609.9

Money market........................863,791....-2,886,338.........+129.9

Foreign money market..............-222,716.......-115,201...........-93.3

All funds........................$12,829,255.....-$2,368,624........+641.6%

© 2007 The Globe and Mail. All rights reserved.

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