Conservative balanced, dividend, bond and income funds dominated the mutual fund industry again last month, accounting for more than 90 per cent of the $1.8-billion in September's net sales.
"It's really about getting that supercharged trust, income and capital gain and not missing out on it . . . from an adviser's point of view, it's such an easy story to tell," said Bill Harris, portfolio manager and partner of Avenue Investment Management Inc.
The Investment Funds Institute of Canada reported $1.8-billion in September sales, pushing mutual fund assets under management in this country to a record $554.2-billion. The gains were thinly spread with three fund categories reporting the lion's share of net sales. Balanced funds saw $1-billion in sales, followed by $936-million in bond and income fund sales and finally, dividend and income funds reported sales of $702-million in sales.
In comparison, fund asset classes without an income or yield component were punished. Canadian common shares, foreign common shares, real estate and U.S. common share funds reported combined September net redemptions of about $750-million.
In addition, Canadian money market and foreign money market funds reported net redemptions of $170-million, the "37th outflow in the past 43 months," said UBS chief strategist George Vasic and analyst Garry Cooper, in a fund update. Money market assets total $47.1-billion, about $16-billion below the peak reached in 2002, "suggesting little cash is available on the sidelines for new investment," the analysts said.
Indeed, new investment dollars are entering the market "from right across the board," said Irwin Michael, the deep-value manager who runs I.A. Michael Investment Counsel Ltd. of Toronto. Money received from inheritance, real estate sales and treasury bill savings are being invested in a mix of conservative, yield-generating funds and products, he said. "There's still a fair amount of fear out there and rattling of the cages . . . people get nervous, there's a lot of jockeying about," Mr. Michael said.
Stock market gains indicate mutual fund dollars are heading into only a handful of sectors. While the 213-member S&P/ TSX composite index is up close to 16 per cent year to date, few sectors are driving the surge in value. The S&P/TSX energy index is up about 56 per cent so for this year while the S&P/TSX utilities index has climbed 26 per cent.
The returns of the S&P/TSX financials group and the S&P/TSX capped-income-trust value index -- an index not yet included in the broader index -- are up 13 per cent and 15 per cent year to date respectively.
Avenue Investment, an independent Toronto investment firm run by three former bank fund managers, is leery of the red-hot energy sector, especially energy income trusts. Oil, gas and energy firms make up about 20 per cent of Avenue's equity portfolio, compared with a hefty 26-per-cent weighting in the S&P/TSX composite index.
Energy trusts "are really playing off the oil and gas price and the upfront cash flows," Mr. Harris said. "The problem is it's a depleting asset . . . it isn't a sustainable business. A bond pays you your principal back at the end of its term. A resource company pays zero."
September shows increase
'It's really about getting that supercharged trust, income and capital gain and not missing out on it...from an adviser's point of view, it's such an easy story to tell.'
Net sales to Sept. 30, excluding reinvested distributors, $'000
|Fund type||September||Yr.-over-yr. % change||Total assets month end|
|Canadian common shares||- 275,943||21.3||131,494,195|
|Foreign common shares||- 359,167||0.8||87,073,431|
|Bond and income||936,297||24.4||59,818,693|
|Foreign bond and income||38,610||12||6,489,511|
|Dividend and income||702,325||40.8||65,918,400|
|Real estate||- 3,073||25.1||2,094,102|
|U.S. common shares||- 114,691||- 4.9||31,372,879|
|Money market||- 201,224||- 9.2||45,245,897|
|Foreign money market||30,824||- 9.0||1,851,185|
SOURCE: INVESTMENT FUNDS INSTITUTE OF CANADA
© 2007 The Globe and Mail. All rights reserved.
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