The hot and cold mutual fund market has left many in the industry scratching their heads.
Fund sales are feverish, with the sector racking up more than $18-billion in sales so far this year, the best performance since 2001's $28-billion. But that performance is masking a deepening chasm between the haves and have-nots.
The best performers are a select group that have top performing income and yield-generating funds, including the fund arms of the Royal Bank of Canada, the Bank of Montreal, CI Fund Management Inc. and a handful of boutique players.
The problem is fund sales have been flat or declining for the bulk of the industry in recent months. Joining the ranks of long-time laggards AIC Ltd., AGF Management Ltd. and Fidelity Investments Canada Ltd. is a surprising list of major players including AIM Funds Management Inc.
"The business is not that healthy when the big independents can't get net sales," said Bill Holland, chief executive officer of Toronto-based CI. CI yesterday reported a 12-per-cent profit rise in the third quarter thanks to an 11-per-cent climb in fee-based assets under management to $71.1-billion.
Income and yield-generating offerings have been the Canadian mutual fund success story. Investors have shunned U.S. and foreign stock funds, even the buoyant Canadian equity funds, to gobble up a narrow stream of products aimed at providing income for retirees. Over the past 12 months, 76 per cent of Canadian fund sales have been in Canadian equities, chiefly income trust, dividend and yield funds.
"There continues to be a fair degree of apathy around the traditional equity flavoured kind of products," fund marketing consultant Dan Richards said. "Everybody is continuing to scratch their heads and look for new and better ways to sell."
The thirst for yield has meant strong sales for income trust fund pioneers, a list that includes Dynamic Mutual Funds Ltd., the Guardian Group of Funds Ltd. and Acuity Funds Ltd. A soaring oil and gas market has added further sales momentum for funds with a heavy weighting in energy trusts, too.
Fund manufacturers with limited offerings in the energy category have been hurt. Pure value managers such as AIC, Mackenzie Financial Corp. and AIM have stuck to their knitting and have had, to date, limited exposure to trusts and the volatile commodity cycle. But Fidelity and AGF have stepped up their income and trust exposure with new funds, product that have yet to find a strong audience.
"I haven't seen a whole lot of traction from recent product launches," said Edgar Legzdins, president of BMO Investments. "That's always difficult when its well into the market in terms of what people have been looking at for years and they already have favourite suppliers."
Many firms need to reposition their product offerings and consider new avenues for sales growth, said Brenda Vince, president of RBC Asset Management Inc.
"This is a more mature market that is about share, and in some cases that means when money is in motion, you have to grab it," Ms. Vince said.
Gavin Graham, director of investments at Toronto's Guardian Group, suggests the fund market's narrow focus is a cause for concern. Any downturn in equity markets may "shake up the bandwagon," especially for fund players already struggling to accumulate net sales.
"You could see the industry start to see negative sales again," Mr. Graham said. "Won't that be fun."
© 2007 The Globe and Mail. All rights reserved.
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