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Mutual Fund News

Canadian investors piling into income-oriented funds

Best-selling class took in $369.7-million in net new sales last month, IFIC says

MUTUAL FUNDS REPORTER

Canadian investors continued to favour income-oriented mutual funds in July, the latest industry sales figures indicate.

Last month, dividend and income funds raked in $369.7-million in net new sales, excluding reinvested distributions, making it the best-selling fund class, the Investment Funds Institute of Canada reported yesterday.

Balanced funds were close behind, reporting $331-million in net new sales while bond and income funds saw a $219.6-million gain. July was the 21st consecutive month of gains for the three fund classes.

The three funds made up the lion's share of the sector's $544-million in net sales excluding reinvested distributions last month, IFIC said.

July fund sales can be volatile. A year ago, the industry group reported net sales of $321-million and in July, 2002, net redemptions totalled $1.1-billion.

The new July numbers put "long-term-fund sales for the first seven months of 2004 at $13.9-billion, the highest for sales in the same period since 2000," said Tom Hockin, IFIC's president and chief executive officer.

In contrast, money market funds posted the largest declines, with net redemptions totalling $248.8-million. Canadian and foreign money market funds account for about 13 per cent of non-money market assets, at the bottom end of the 12-per-cent to 18-per-cent range seen since 1993.

Those numbers suggest that "cash on the sidelines for new investment remains low," UBS Securities Canada Inc. analyst George Vasic said in a report yesterday.

More important for fund companies, industry assets also slipped 1.3 per cent in the month to $470-billion, down from $476.1-billion in June. (In comparison, the Standard & Poor's/TSX composite index slipped 1 per cent in value last month.) Still, fund assets under management are up 16.6 per cent from $403.2-billion in July, 2003.

Canadian investors edging into retirement continue to invest in income trust funds and high-yield bond funds, conservative investments with a guaranteed monthly return, said Gavin Graham, director of investments at the Guardian Group of Funds Ltd. in Toronto.

"What are you getting in a money market fund? One and a half to 1 per cent. So the returns, while they are better than what you get in the bank, are not really sufficiently attractive," Mr. Graham said. "If you can go from getting 1 per cent to 5 or 6 per cent, which you can do in the income trust or balanced area, then that's probably what a lot of people are choosing to do."

The biggest individual fund sales winners included Trimark Income Growth, BMO Monthly Income, Trimark U.S. Companies, and TD Real Return Bond. "All the big value funds are taking in money at the top," said analyst Peter Loach at BMO Nesbitt Burns Inc.

Equity funds continued to lose investors. July was the fourth consecutive month of net redemptions for the total of Canadian, foreign and U.S. equity funds, said Dan Hallett, president of Dan Hallett & Associates Inc.

"In fact, if you exclude this past RRSP season . . . stock funds as a group have seen money leave on a net basis since June, 2002. The silver lining is that the net redemption of stock funds are much smaller this year than they were over the past couple of years," Mr. Hallett said.

Fund company Brandes Investment Partners & Co. was July's best financial performer, attracting $139-million in new investment. AGF Funds Inc., a former Brandes partner, was the month's worst performer, reporting $227.4-million in net redemptions, including a $102.9-million one-time rebalancing from an institutional client.

Mutual fund sales increase

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

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

Balanced.........................$3,554,086.......$163,250....+ 2,077.1%

Canadian common shares........- 63,757....- 1,394,323.....+ 95.4

Foreign common shares...........185,890...- 1,637,446.....+ 111.4

Bond and income................4,322,681......2,255,628......+ 91.6

Foreign bond and income.........374,586........192,627......+ 94.5

Dividend and income............4,423,766......1,799,861....+ 145.8

Mortgage...........................317,822...........9,862...+ 3,122.7

Real estate........................- 40,308.........57,860...... 169.7

U.S. common shares..............759,404.........80,589.....+ 842.3

Money market.....................268,447...- 3,930,199.....+ 106.8

Foreign money market.........- 239,076.......222,330.......- 7.5

All funds.......................$13,863,541....- $2,624,621.+ 628.2%

© 2007 The Globe and Mail. All rights reserved.

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