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Mutual Fund News

February sales a winter tonic

Sluggish January gives way to month hitting top end of forecast range

MUTUAL FUNDS REPORTER

The mutual fund industry finally had a reason to celebrate yesterday, reporting a better-than-forecast February with net sales of $5.3-billion.

It was the strongest sales month since 2000 and sparked some optimism that the sector may have at last recovered from months of sales volatility and bad news.

"Mutual fund sales seem to have to have stabilized," said Dan Richards, a fund marketing consultant. "They seem to have hit a sensible balance . . . between the high of the late 90s and the lows of the last few years."

The sales figure is the sector's best monthly performance since $6.5-billion in net sales reported in February, 2000. Last month's results are at the top end of the Investment Funds Institute of Canada's (IFIC) March 2 forecast of $4.7-billion to $5.3-billion in net sales. For the same period a year ago, IFIC reported $5-billion in net sales and a slender $485-million in 2003.

February is typically the most active month for sales as investors deploy money in advance of the March 1 registered retirement savings plan contribution deadline.

The results are an industry tonic after months of bad news. This winter, five fund companies agreed to pay more than $250-million to reimburse unitholders for permitting improper trading in mutual funds. January's net sales, meanwhile, were a sluggish $660.7-million, about one-third of the $1.8-billion in new dollars investors sunk into funds in January, 2004.

While February's data shows sales have improved, demand was limited to a handful of fund classes. Income-oriented funds saw a record $4.9-billion in new investment. Dividend and income funds raked in $1.8-billion, balanced funds netted $1.7-billion and Canadian bond and income funds reported net sales of $1.2-billion.

"It's huge whack of cash" invested last month, said Peter Loach analyst at BMO Nesbitt Burns. "I don't think people can say it's an industry in decline."

February's results also include the first signs that small investors may be returning to Canadian equity funds. Canadian common share funds reported $639.8-million in net sales last month compared to $698.6-million in net redemptions in January.

In contrast, last month foreign common share funds reported $152.1-million in net redemptions and U.S. common share funds reported a slender $100.8-million in net sales.

Investors are "clearly showing a preference for domestic to foreign equities," said George Vasic, analyst and chief economist at UBS Securities Canada Inc.

"This will bring some relief for those who feared an exodus of investment" following the end of the cap on foreign content held in RRSPs and pension plans, he said.

Of the largest fund companies, IGM Financial Inc.'s assets under management gained 2.9 per cent on the month to $85.4-billion, followed by RBC Asset Management, a division of Royal Bank of Canada, up 4.4 per cent to $49.6-billion. The assets of CI Fund Management Inc., the country's third largest fund company, rose up 4.3 per cent to $45.3-billion.

AIC Ltd. was February's biggest loser, reporting a 1.9 per cent decline to $10.4-billion. The company reported net redemptions last month of $399-million.

Mutual fund sales climb in February

"Fund sales seem to have hit a sensible balance between the high of the late '90s and the lows of the last few years." DAN RICHARDS, FUND MARKETING CONSULTANT

Net new sales to Feb. 28, excluding reinvested distributions, $'000

Fund type2005% change
Balanced$1,722,444+149.1%
Canadian common shares639,830+191.6
Foreign common shares-152,149+73.6
Bond and income1,177,372+124.4
Foreign bond and income105,694+172.5
Dividend and income1,813,425+84.6
Mortgage70,150+88.9
Real estate19,328+80.3
U.S. common shares100,846+135.1
Money market-183,272-284.3
Foreign money market10,086+169.0
All funds$5,323,754+705.8%

SOURCE: INVESTMENT FUNDS INSTITUTE OF CANADA

© 2007 The Globe and Mail. All rights reserved.

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