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Mutual Fund News

Hot mutual funds cool down in April after RRSP season

First indications appear that appetite for income trusts and funds is softening

MUTUAL FUNDS REPORTER

Mutual fund sales slowed dramatically to about $600-million last month as investors took a break after the busy registered retirement savings plan season, the Investment Funds Institute of Canada reported yesterday.

In its preliminary estimate, the industry lobby group says April net sales of mutual funds will tally between $400-million and $800-million. That's down dramatically from the $3.4-billion in net sales reported in March and the $1.4-billion in April, 2004.

But that month's sales are typically volatile, as they follow billions in new investment in the heady January-to-March RRSP season. For example, the fund industry reported massive April redemptions of $1.6-billion in 2003 and redemptions of $263-million in April, 2002.

The latest results were slightly below the expectations of Peter Loach, an analyst at BMO Nesbitt Burns Inc. He predicted the month's final net sales tally will be between $750-million and $850-million.

The big banks continued to dominate the industry with the Royal Bank of Canada's mutual fund arm reporting $222-million in net sales last month, followed closely by Toronto-Dominion Bank racking up $218-million in sales. Canadian Imperial Bank of Commerce and National Bank of Canada lagged behind their peers, reporting April redemptions of $91-million and $12-million respectively as investors yanked dollars from money market funds.

Four fund firms rounded out the negative sales group: Altamira Investment Services Inc., Fidelity Investments Canada Ltd., Franklin Templeton Investment Corp., and AIC Ltd., which reported a whopping $312-million in redemptions. Assets under management of the private fund company have slipped to $9.5-billion from $15.4-billion three years ago.

Typically, large mutual funds with poor or mediocre performance are hurt when investment dollars move off their DSC schedule. The DSC or "deferred sales charge," which is the cost to the investor to sell his or her units in the fund, declines over time.

Meanwhile, April saw the first indications that the market's appetite for income trusts and funds that invest heavily in the asset class are softening, analysts said. Niche fund companies with a specialty in income trusts and products, including the Guardian Group of Funds Ltd., Mavrix Fund Management Inc. and Acuity Funds Ltd., reported softer April sales, analysts said.

"Some of the demand is starting to wane somewhat," said Eric Frape, vice-president of product management at Clarington Funds Inc. of Toronto.

"It's an indication there is a bit of nervousness built up in the trust market."

Many mutual fund managers are in a defensive mood, said Raynor Burke, head of fund research at National Bank Financial Inc.

Cash is king as managers seek to limit risk, citing the wary income trust market, a soft U.S. economy and the weak technology sector, he said. "It is a pretty choppy market."

© 2007 The Globe and Mail. All rights reserved.

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