Mutual fund investors embraced conservative income products and shunned equities last month, losing out on gains posted by recovering stock markets at home and abroad.
"The flight to safety continues," said Gavin Graham, director of investments at Guardian Group of Funds Ltd., the Toronto unit of BMO Nesbitt Burns Inc. "Equities are not where people want to be."
Canadian equity funds saw outflows of $258.4-million in November, the 27th month of net redemptions in the past 29 months. U.S. and foreign stock funds, meanwhile, saw $713.1-million in investment head out the door. The financial data were released yesterday by the Investment Funds Institute of Canada.
In contrast, dividend and income funds reported $1.1-billion in net sales. Assets under management in the fund category, which includes popular income trust funds, totalled $51.3-billion at the end of November. A year ago, assets in the fast-growing category totalled $36.8-billion.
"There's still huge interest in income-type products," said William Holland, president and chief executive officer of CI Fund Management Inc.
The CI Signature High Income Fund has $2.3-billion in assets, making it the country's largest income trust mutual fund.
Balanced funds were November's second-best sales performer, reporting net sales of $642.2-million. Bond and income funds were in distant third place, reporting $213.4-million in new investment dollars last month.
Net sales of all funds totalled $260-million, reversing two months of redemptions in September and October but well below the $513-million in net inflows reported in November last year.
"Over all, mutual funds had a very small inflow. Equity outflows still are very strong," said George Vasic, strategist and chief economist at UBS Securities Canada Inc. "The appetite for income-oriented flows continues."
The conservative investment strategy means many Canadians missed out on strong equity gains. Soaring commodity prices, increased corporate and consumer spending on technology and the definitive outcome of the U.S. presidential election drove markets higher across North America and overseas.
The S&P/TSX composite index was up 1.8 per cent last month, the Nasdaq composite climbed 6.2 per cent and the Nikkei 225 rose 1.2 per cent.
The equity bear market of 2000 to 2002 has left "a perception that stocks are extremely risky," said Dan Richards, a mutual fund marketing consultant. As a result, investors are embracing income trusts, he said.
"There is a perception or a misperception on the safety of some of these [income trust] products . . . And as long as people believe that, it will be difficult for equities to come back full flight," he said.
Global equity funds posted the best November returns among the country's 10 largest mutual funds. Franklin Templeton Investment Corp.'s $6-billion Templeton Growth Fund Ltd., a well-regarded 50-year-old equity fund with a heavy weighting in the United States, Britain and Japan, was up 4.2 per cent in value.
AIM Funds Management Inc.'s Trimark Select Growth Fund, a $5.3-billion mutual fund with close to 60 per cent of its investments in U.S. stocks, posted a gain of 2.7 per cent in November.
|Net assets $billion||1-mth. return|
|Investors Div. - A||$8.5||0.4%|
|Investors Div. - C||6.4||0.4|
|Fidelity Cdn. Asset||6.2||1.4|
|TD Cdn. MM||5.4||0.1|
|Mackenzie Ivy Cdn.||5.2||0.0|
|TD Cdn. Bond||4.6||0.7|
© 2007 The Globe and Mail. All rights reserved.
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