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Strong mutual fund sales suggest firms have shaken tech-meltdown 'hangover'


Robust January sales have put the mutual fund industry on track to potentially its best RRSP sales season since the late 1990s.

Net sales reached $4-billion last month, the industry's best January showing since 1997, the Investment Funds Institute of Canada reported yesterday.

Forecasters expect net sales may reach the $18-billion mark by the end of March, the highest RRSP sales tally since 1998 when investors snapped up $19-billion in funds. In comparison, the industry reported $9.8-billion in net sales during the 2006 RRSP season.

"Demand seems to be subdued through most of 2006 perhaps in anticipation of weaker equity markets that never materialized," said Frank Hracs of research firm Canadian Mutual Fund Analyst. "Now you are seeing a catch-up in demand given the state of the economy and the state of the markets."

Investors have shaken off their post-tech bubble "shyness," said Karen Smiley, vice-president of sales at AIM Funds Management Inc. "We are seeing the end of a prolonged hangover from the late '90s and early 2000," Ms. Smiley said.

Sales gains were widespread last month with AIM, AGF Management Ltd. and Bank of Nova Scotia among the firms showing significant improvement over January, 2006. Six fund companies lost business last month compared with 10 firms in January, 2006.

Several factors are driving sales of registered retirement savings plans, sources said.

Buoyant equity markets. "The momentum is there," said James Gauthier, investment funds analyst at Dundee Securities Corp. "Most major markets in Europe as well as in North America are at five or six year highs or at all-time highs. That's naturally going to be attractive."

Renewed interest in foreign markets. Global and international equity funds were the month's biggest winner, attracting close to $2-billion in net sales, up from $56-million a year ago. "Investors are realizing they made a lot of money in Canada," said David Feather, president of Mackenzie Financial Services Inc. "Some of the new money invested is going to foreign and international funds. A mutual fund is the best way to capture a foreign or international market."

Canadians are wealthy. Between 2001 and 2006, personal disposable income rose 25 per cent, or 5 per cent a year on average -- well outpacing inflation, Statistics Canada reports.

"Liquidity seems to be relatively high," said George Vasic, chief economist and chief strategist for UBS Securities Canada Inc. in Toronto. "The world seems awash in financial assets that are looking for a home so one outlet obviously would be mutual funds."

© 2007 The Globe and Mail. All rights reserved.

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