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Demand for income drives fund sales

Icing on the cake was a third consecutive year of double-digit gains on the TSX

MUTUAL FUNDS REPORTER

It was all about income in 2005.

Demand for monthly fixed income drove asset growth among the bulk of last year's top-selling mutual funds. And for many funds, the icing on the cake was a third consecutive year of double-digit gains from the Toronto Stock Exchange.

A low interest rate environment meant investors were "going to great lengths to find yield anywhere," said Joe Canavan, chairman and chief executive officer of financial advice firm Assante Corp.

"It's a focus on cash flow," said Brenda Vince, president of RBC Asset Management, a division of Royal Bank of Canada. "We've done a lot on focusing clients on after-tax returns."

The RBC Monthly Income Fund, an investor in blue-chip equities and bonds, was the fund to beat in 2005. The fund reported a stunning 79-per-cent growth last year with assets under management soaring to $7.9-billion.

The banks were the big winners with funds managed by RBC, Toronto-Dominion Bank and Bank of Montreal claiming eight spots in the top twenty.

CI Financial Inc., the country's third-largest fund company, was the single biggest winner. Five CI funds were among the sector's top 20 asset gainers last year, growing by a combined total of about $7.2-billion. "A lot of our bestsellers were equity funds," said Bill Holland, CI's CEO. "Good performance is a predictor of sales and Canadian equities had a fabulous year."

The Mackenzie Cundill Value Fund was an anomaly among the top asset gainers. While investors in 2005 shied away from foreign stock funds, Mackenzie's flagship global fund reported $2.2-billion in asset growth over the past 12 months.

"Investors are still very interested in a good-value approach," said David Feather, president of Mackenzie Financial Services Inc. The fund "really did buck the trend," he said, adding that management "made a very wise approach to hedging the currency and stock selection."

The Franklin Templeton Balanced Growth Portfolio Fund grew by more than $1-billion last year too, reflecting enthusiasm for portfolio solutions. The FT fund is a standalone product but holds interests in 13 of the Toronto fund company's family of mutual funds.

So-called "wrap" programs that bundle together funds accounted for about 23 per cent of the investment fund market in 2004 and will climb to about 43 per cent by 2014, Toronto research firm Investor Economics reported recently.

Investors "are looking for solutions that will achieve or meet their long-run objectives and move them away from the day-to-day buy-and-sell decisions," said Elizabeth Lunney, Franklin senior vice-president and portfolio manager in Toronto.

Increasing interest in exchange-traded funds meant strong inflows for Barclays Global Investors Canada Ltd. The iUnits S&P/TSX 60 Index Fund, the firm's flagship fund, reported $1.4-billion in asset growth last year. The $7.8-billion fund rose a heady 25.9 per cent in value in 2005.

"People are looking for alternatives," said Geri James, Barclays' head of Canadian ETF products and administration. "If you want Canadian exposure, that's the one [the i60 fund] you go to."

Several fund executives predict the 2006 list of top-selling funds may look very different than last year. RBC, for example, has a cautious view of Canada's fully valued financial services and energy equities and is urging investors to diversify and consider U.S. and foreign-content funds. "We are not out there promoting a lot of our Canadian fund returns today because we don't want to play into the 'buy after it's happened' model," Ms. Vince said. Later this month, the bank plans to launch two currency-neutral U.S. equity funds.

A growth story

Monthly investment income was the carrot driving asset growth among the bulk of last year's top-selling mutual funds. And banks were the big winners with seven of the top 10 funds by assets.

FUND2005 NET ASSETS ($MILLION)2004 NET ASSETS ($MILLION)2005 GROWTH OF ASSET ($MILLION)
RBC Monthly Income$7,942 $4,429 3,512
Investors Dividend-A11,3368,7602,575
Mackenzie Cundill Value 'C'3,8941,6682,227
RBC Dividend6,4244,3272,097
TD Canadian Bond6,7024,7511,951
CIBC Monthly Income4,9473,0061,941
BMO Monthly Income4,7002,9401,760
CI Canadian Investment4,5192,8441,675
BMO Dividend4,4032,7711,632
TD Monthly Income3,2451,6641,582

SOURCE: INVESTMENT FUNDS INSTITUTE OF CANADA

© 2007 The Globe and Mail. All rights reserved.

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