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'Dreadful' September sales halt fund industry's winning streak

MUTUAL FUNDS REPORTER

Investors yanked an estimated $350-million out of mutual funds in September, ending the troubled sector's tentative recovery.

According to preliminary estimates released yesterday by the Investment Funds Institute of Canada, the industry is expected to report September net redemptions of between $550-million and $150-million. The results will end an 11-month winning streak that saw Canadians sink about $16-billion into mutual funds.

"Net redemptions for the month of September are expected to be approximately $350-million," said Tom Hockin, IFIC's president and chief executive officer, in a statement.

Industry executives described the results as depressing but were quick to note that September historically is a weak sales period.

"Gosh, aren't they dreadful," said Gavin Graham, vice-president, director of investments at Guardian Group of Funds Ltd. Investors are moving their money out of many older multi-billion dollar funds as costly deferred service charges, which a unit holder must pay to exit a fund, get phased out, he said.

September is typically "a period of readjustment," said Don Reed, president and CEO of Franklin Templeton Investments Corp. "The markets haven't sparkled and people are looking to make some changes."

Some of the most successful fund companies of the 1990s saw the most redemptions. Fidelity Investments reported $270-million in net redemptions while AIC Ltd. saw $221-million head out the door.

Preliminary data from Globefund show five of the 10 largest mutual funds in Canada posted negative or flat performance in September. The worst performer of the big 10 was the $4.6-billion AGF International Value Fund, down 2.8 per cent in value last month. On a sector basis, the hottest group in September was resources.

"It's easier on a $1,000 account to get a 30-per-cent return than it is on a $100-billion account," said Peter Loach, an analyst at BMO Nesbitt Burns. "It is going to get tougher and tougher when you are constrained by the size of your fund. That's why a lot of these larger funds are having a difficult time."

The handful of September firms in the black were smaller, more nimble fund companies that specialize in niche products. Brandes Investment Partners & Co. and Phillips Hager & North Investment Management Ltd. reported net sales of $156-million and $139-million, respectively.

Among fund indexes, natural resources was up 8.7 per cent in value, thanks largely to soaring oil prices. Precious metals rose 5.8 per cent because of a gold rally that saw the precious metal hit an Oct. 1 high of $418.15 (U.S.) an ounce. The U.S. trade deficit, trouble at mortgage giant Fannie Mae and geopolitical uncertainty have sparked a gold run at the expense of the U.S. dollar, said John Ing, president of Maison Placements Canada Inc.

Several overseas equity indexes did poorly, with global equity, international equity and Japanese equity all in negative territory. Latin American funds bucked the trend, up 5.3 per cent in September, thanks to booming economies in Mexico, Chile and Brazil, said Ian Filderman of Scotia Securities Inc.

Resources on top

Average return for each asset class (as of Sept. 30, 2004)

..............................Returns.................Year-

Asset class................1 month...3-month...to-date....3-year.....5-year

Natural resources..........8.7%.......8.7%.....10.6%.....23.4%....14.2%

Precious metals............5.8..........6.9.....- 15.0.......29.2.......16.8

Latin American equity.....5.3.........11.2.......12.6.......15.2.........6.9

Cdn. small capitalization...4.3.......- 0.8.........5.0.......18.2.......10.8

Canadian income trusts....3.2.........6.1.......10.4.......16.1.......14.5

Canadian equity............2.5.........0.1.........4.3........7.4........6.3

Emerging markets.........1.9.........1.8.........2.0.......13.3.......2.2

Canadian dividend.........1.9.........3.0.........5.9.........8.7.......9.9

Alternative strategies......1.8.........0.3......- 1.7........0.8......- 1.6

Canadian balanced.........0.8.........0.1.........2.8........4.9........4.7

Science and technology....0.7......- 13.3......- 9.6......- 4.7....- 13.6

Real estate..................0.4.........3.0.........7.2........9.4........9.4

European equity............0.2.......- 4.6.........1.0........0.0......- 3.2

Canadian bond..............0.2.........2.2.........2.8........5.4.........5.6

Canadian money market...0.1........0.3..........0.9........1.8.........2.8

Global equity............- 0.7........- 5.9.......- 0.8......- 0.2......- 1.7

International equity......- 1.0......- 5.7.........0.4......- 0.1.......- 3.6

Health care...............- 1.1......- 8.8......- 2.3......- 5.8.........3.5

U.S. equity...............- 1.5.......- 7.3.......- 2.9......- 3.6......- 5.4

Japanese equity..........- 5.7......- 12.8.........1.0........0.4......- 9.8

SOURCE: GLOBEFUND.COM

© 2007 The Globe and Mail. All rights reserved.

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