Canadians sank $2.3-billion into mutual funds last month as the retail appetite for conservative yield and blue-chip income funds remained insatiable.
Once again, three fund categories -- dividend, balanced and bond funds -- accounted for the lion's share of net sales last month. Close to $30-billion in investment dollars have poured into the categories this year.
"It's more of the same," said Gavin Graham, director of investments at Guardian Group of Funds Ltd. of Toronto.
He expects the demand for yield and income generating products will continue for the foreseeable future until investors warm to "the great Canadian equity story," or there's a marked decline in interest rates.
Fund net sales in the first 11 months of the year reached $21.7-billion, surpassing the $13.5-billion for the same period in 2004, the Investment Funds Institute of Canada reported.
In November last year, net sales totalled $260-million, about one-tenth of last month's tally.
While retirement planning issues dominated the 1990s, this decade is all about making the small investor's portfolio work harder to generate income, said Jonathan Hartman, vice-president of investment products at RBC Asset Management Inc.
"We continue to see a theme around clients seeking ways to supplement income, even as we see interest rates rising.
"It has become a key client focus," Mr. Hartman said.
Balanced funds were November's big performer, racking up $1.1-billion in net sales. Bond and income funds were in second place, reporting $836.6-million in net sales. Rounding out the top three were dividend and income funds, with $736.2-million in net sales.
Income trust funds rebounded last month, reporting net sales of $86.4-million. That's up from net redemptions of $190-million in October.
Monthly net sales of trust funds, an asset class included in IFIC's dividend and income category, averaged about $200-million between April and September.
In September, Finance Minister Ralph Goodale said the Canada Revenue Agency would no longer grant advance tax rulings to help companies become trusts, prompting a wave of retail selling in trusts and trust-heavy funds. Worry turned to relief on Nov. 23, when the federal government opted to leave the tax status of the asset class alone, and instead raise the dividend tax credit.
"Canadian income trust funds made a modest comeback following the federal government's decision to enhance the dividend tax credit in response to issues regarding income trusts," said Tom Hockin, IFIC's president and chief executive officer.
Meanwhile, investors continued to shun Canadian common share funds. The asset class reported net redemptions of $306.2-million last month. And year to date, investors have yanked about $2.3-billion from the asset class.
U.S. common share funds were out of favour, too, reporting $51-million in net redemptions last month. So far in 2005, investors have pulled $970-million out of U.S. mutual funds.
Neglect for Canadian and U.S. common share funds is "music to my ears," said Irwin Michael, president of I. A. Michael Investment Counsel Ltd. of Toronto.
The deep value manager favours out-of-fashion small and mid-cap companies.
"We tend to be optimistic for 2006. I think equities should tend to do well, mind you, it's going to be one of stock-picking," he said, noting attractive evaluations for many base metal equities and U.S. small cap stocks.
A long list of takeover deals in 2005 indicates "the market isn't exactly expensive. You've got real companies putting up real cash," Mr. Michael said. "At some point, the masses will warm up to stocks again."
The quest for yield
Three fund categories-dividend, balanced and bond funds; accounted for the lion's share of net sales last month. Close to $30 billion in investment dollars have poured into the categories this year.
|To Nov. 30, in thousands|
|Fund Type||Total assets month end||Yr.-every-% change||November net new sales|
|Canadian common shares||128,755,708||14.3%||-306,185|
|Foreign common shares||86,874,598||0.4||-17,899|
|Bond and income||61,302,390||24.1||836,641|
|Foreign bond and income||6,388,844||11.8||26,601|
|Dividend and income||67,375,378||31.2||736,160|
|U.S. common shares||31,876,833||-2.1||-50,962|
|Foreign money market||1,860,461||0.5||11,902|
SOURCE: INVESTMENT FUNDS INSTITUTE OF CANADA
© 2007 The Globe and Mail. All rights reserved.
Only GlobeinvestorGOLD combines the strength of powerful investing tools with the insight of The Globe and Mail.
Discover a wealth of investment information and and exclusive features.