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Mutual Fund News

Net sales continue climb in June, adding to industry's recovery

IFIC's preliminary estimates indicate ninth consecutive month of increases

MUTUAL FUNDS REPORTER

An estimated $350-million in new investment flowed into the Canadian mutual fund sector last month, continuing the industry's steady recovery.

According to preliminary estimates released yesterday by the Investment Funds Institute of Canada, June net sales were between $150-million and $550-million, the ninth consecutive month of gains. More encouraging for the industry was the fact that this result came in a month that is typically poor for mutual fund sales: A year ago, the industry reported net redemptions of $577-million in June.

The results extend the lukewarm comeback for mutual funds. In 2003, the sector reported net redemptions of $607-million on net assets of $439-billion.

"It's better than expected," said Peter Loach, an analyst at BMO Nesbitt Burns Inc. With interest rates on the rise, he expects investors are in a cautious mood, anxious to take profits from the market and sink money into real estate and other assets.

"Equity markets in the first two quarters were positive but there is volatility, there is uncertainty and it certainly took its toll," he said.

IFIC estimated that net assets for the industry at the end of June were in the range of $473-billion to $478-billion, up a slender 0.5 per cent from May's total of $473.7-billion. A year ago, IFIC's 200 financial services members had $390.8-billion in assets under management.

Despite the June sales gain, the confidence of investors has been shaken by the bear market and a series of U.S. fund scandals, said a report released yesterday by KPMG LLP. The accounting firm interviewed 300 investment managers around the world to compile the report: Raising the Performance Bar: challenges facing global investment management in the 2000s.

"People have lost a lot of money," said Harry Ort, national industry leader of KPMG's financial services practice in Toronto. "The reason they have lost a lot of money is the mutual fund companies have invested in companies that have been in the headlines. . . . Were they not aware and not watching out for some of these signals of companies that were in trouble?"

In a market of low returns, fund companies that undergo a "cultural shift" and cater to the needs of the small investor will survive and prosper, Mr. Ort said.

"You will have a number of companies preaching about customer service, that they are No. 1," he said, adding that he expects the number of investment products and small boutique firms to flourish.

Indeed, IFIC's data suggest investors are turning to new fund managers. Low-profile Brandes Investment Partners & Co. was the month's best performer, reporting net new sales of $161-million. Two years ago, U.S.-controlled Brandes severed ties with partner AGF Management Ltd. and now has $2.6-billion in assets under management. (IFIC did not disclose publicly traded AGF's June figures.)

AIC Ltd. had the steepest loss in business for the month, reporting $147-million in redemptions for a total of $12-billion in net assets under management. Fidelity Investments was the second-worst performer, reporting net redemptions of $128-million for a total of $31-billion in assets under management.

The big six banks, who collectively manage about one-third of all mutual fund assets in Canada, reported mixed returns. TD Asset Management, BMO Funds and National Bank Mutual Funds reported improved net sales, while RBC Asset Management, CIBC Asset Management and Scotia Securities Inc. reported net redemptions.

Despite the mixed results, Rudy Luukko, investment funds editor at Morningstar.ca, said many funds posted strong investment returns in the past year. For example, Canadian equity funds posted a median return of 21.8 per cent for the 12 months ended May 31.

"It's not all gloom and doom," he said.

Preliminary industry estimates

Top 10 companies

....................................................Net assets..June net sales

.....................................................($million).......($million)

IGM Financial....................................$79,184...........$138

RBC Asset Management.........................44,417...........-18

CIBC Asset Management........................40,928...........-25

AIM Trimark Investments........................40,835............25

CI Mutual Funds....................................40,614............52

TD Asset Management...........................34,409............39

Fidelity Investments................................31,010..........-128

Franklin Templeton Investments..................19,482...........98

BMO Funds.........................................18,273...........61

Scotia Securities....................................13,844..........-20

Information represents only preliminary estimates from a sample of IFIC members for their mutual fund assets only. Net sales exclude reinvested distributions.

SOURCE: INVESTMENT FUNDS INSTITUTE OF CANADA

© 2007 The Globe and Mail. All rights reserved.

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