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Fund sector misses January forecast by $800-million

Clerical error dents optimism for strong RRSP sales season

MUTUAL FUNDS REPORTER

Canadian mutual fund sales in January fell a whopping $800-million short of the industry's initial estimate yesterday, the second time in the past year a clerical error has scuttled the fund sector's forecast.

Not only did the figure dent optimism for a strong RRSP season, but the gaffe provided ammunition to critics who claim the Investment Funds Institute of Canada's results fail to accurately depict the fund market's dynamics.

IFIC reported January net sales of $660.7-million, well below the Feb. 2 preliminary forecast for the month of between $1.3-billion and $1.7-billion.

The revised sales figures are "disappointing," said Frank Hracs of research firm Canadian Mutual Fund Analyst. "Obviously, they are pretty far off the mark . . . the first month of RRSP season is off to a slow start."

Erwin Go, IFIC's manager of statistics, attributed the shortfall to "a non-recurring anomaly" in sales results from AGF Management Ltd.

AGF, which does not provide sales estimates to the association, said in November that client Manulife Financial Corp. would be redeeming about $880-million in funds in January. That redemption was not recorded by IFIC in its original estimate.

In June last year, IFIC released May net sales figures that were $267-million short of the initial forecast. The mutual fund association blamed the shortfall on the receipt of incorrect sales figures from BMO Investments Inc.

"You've got to always verify the data," said Peter Loach of BMO Nesbitt Burns, who had forecast January fund sales of about $700-million.

IFIC's membership includes a vast mix of about 200 banks, fund managers and distributors, and small boutique firms. But the group's monthly data does not include results from some fund companies, a list that includes Capital International Asset Management Inc., manager of more than $700-million in retail assets. In addition, increasingly popular structured products and alternative investment vehicles such as hedge funds are not included in IFIC's monthly statistics.

"Alternatives are not counted in IFIC, and that's a main driver of the weaker number," Mr. Loach said.

January's net fund sales are about one-third of the $1.8-billion in new dollars investors sunk into funds in January, 2004. Increasingly popular dividend and income funds reported $982.1-million in net sales last month, up 40 per cent from the $699.1-million reported a year ago.

In contrast, investors shunned pure equity funds with net redemptions of common stock, U.S. and foreign stock funds totalling more than $1.5-billion. A year ago, all classes of equity funds reported a modest $72-million in net sales.

George Vasic, analyst and chief economist at UBS Securities Canada Inc., expects some retail investors are "rotating" their investment dollars out of stock funds and into income funds.

"People are not buying mutual funds per se, they are buying specific types of funds," Mr. Vasic said. "There may be a perception now that [interest] rates in Canada are in a holding pattern for the time being and providing additional relief for those who want income-oriented funds. One of their major fears has been deferred."

January is typically one of the most important sales months as the industry's marketing and sales teams gear up to meet the end-of-February deadline for Canadian investors to contribute to their registered retirement savings plans.

Despite falling short of sales estimates, January represents the third consecutive month of net sales for the recovering sector. For the first time in history, total assets under management surpassed the $500-billion mark.

"We have reached a landmark going past half a trillion dollars in assets," said John Murray, IFIC's vice-president of regulation and corporate affairs.

Nevertheless, analysts said recent sales results indicate the fund industry has matured and growth is slowing. In 2004, the industry reported $14.7-billion in net sales, its best results since 2001.

Mutual fund sales tumble in January

Net new sales to Jan. 31, excluding reinvested distributions, $'000

Fund type20052004% change
Balanced$691,591$203,515+239.8%
Canadian common shares-698,55669,282-1,108.3
Foreign common shares-576,261-75,924-659.0
Bond and income524,744860,489-39.0
Foreign bond and income38,78956,837-31.8
Dividend and income982,123699,139+40.5
Mortgage37,1341,470+2,426.1
Real estate10,7174,666+129.7
U.S. common shares-287,29878,679-465.2
Money market-47,684-34,550-38.0
Foreign money market-14,610-46,226+68.4
All funds$660,689$1,817,377-63.6%

SOURCE: INVESTMENT FUNDS INSTITUTE OF CANADA

© 2007 The Globe and Mail. All rights reserved.

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