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Mutual Fund News

Funds no longer rule in RRSP season

Other investment products eat into sales

MUTUAL FUNDS REPORTER

Intense competition among investment products may have gobbled up as much as $3-billion in business from mutual funds in the registered retirement savings plan season, an industry analyst reports.

The Investment Funds Institute of Canada said yesterday net fund sales for March totalled $3.6-billion, up slightly from $3.4-billion of a year earlier. Net sales for the first quarter, the industry's key RRSP season, were $10.1-billion, up modestly from $9.4-billion a year ago.

The results were "probably $2-billion or $3-billion less . . . than seems to be justified by recent relationships between demand and market returns," said Frank Hracs of industry research firm Canadian Mutual Fund Analyst. He blamed competing investment vehicles that "were relatively successful in capturing market share from mutual funds" for the shortfall.

Anecdotal evidence suggests some investors were willing to sink money into alternative asset classes over the winter.

Demand for hedge funds is increasing, said Miklos Nagy, chairman of Canadian Hedge Watch Inc. and president and chief executive officer of Quadrexx Asset Management Inc. "Most Canadian hedge funds are long-short funds and, with equity markets booming, they did very well," he said.

Meanwhile, Bank of Montreal reports strong sales momentum for principal protected notes, a basket of securities that guarantees the investors their principal investment plus any additional gains. Similarly, Ian McPherson, president of Criterion Investments, the new structured products division of VenGrowth Capital Partners Inc., said there is "buoyant" demand for new issues in the asset class.

In contrast, George Vasic, analyst and chief economist at UBS Securities Canada Inc., described the mutual fund industry's $3.6-billion in March net sales as a "mini bang at best," saying that between 1994 and 2005, net sales for the month averaged $4.1-billion.

Investors continue to favour long-term funds, led last month by almost $1.5-billion into moving balanced funds. Dividend and income funds added $950-million, while demand for foreign common share funds improved to $673.9-million in net sales. Modest March

Net sales for March totalled $3.6-billion, up slightly from $3.4-billion reported a year ago. Net sales for the first quarter, the industry's key RRSP season, were $10.1-billion, up modestly from $9.4-billion a year ago.

'Most Canadian hedge funds are long-short funds and, with equity markets booming, they did very well.'

MIKLOS NAGY, CHAIRMAN OF CANADIAN HEDGE WATCH INC. AND PRESIDENT AND CEO OF QUADREXX ASSET MANAGEMENT INC.

Total sales

Net sales to March 31, excluding reinvested distributions, $'000

FUND TYPEMARCHTOTAL ASSETS MONTH-ENDYR.-OVER-YR. % CHANGE
Balanced$1,487,758 $134,028,875 38.80%
Canadian common shares79,273142,472,73418.5
Foreign common shares673,943100,060,84114.5
Bond and income523,01665,170,34419.8
Foreign bond and income59,5126,308,0811.8
Dividend and income950,55576,187,96926.1
Mortgage- 15,1944,724,6325.7
Real estate9,1362,471,64331.1
U.S. common shares134,90133,354,7794
Money market- 208,47341,993,763- 12.1
Foreign money market- 45,5211,875,348- 0.7
All funds$3,648,906 $608,649,009 18.60%

SOURCE: INVESTMENT FUNDS INSTITUTE OF CANADA

© 2007 The Globe and Mail. All rights reserved.

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