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Mutual Fund News

Investors pile into mutual funds, cap best first quarter in 9 years

INVESTMENT REPORTER

Investors injected $5.2-billion into Canadian mutual funds last month to close out the best first-quarter net sales in nine years -- and their new love affair with offshore equities continued to bloom.

The performance, up from $3.5-billion in March, 2006, brought net sales for the first three months of 2007 to nearly $17.1-billion, compared with just $9.8-billion a year earlier, the Investment Funds Institute of Canada said yesterday.

The quarterly total, bolstered by February registered retirement savings plan sales of just under $8-billion, compared with $4.8-billion a year earlier and was the highest since 1998, when fund net sales totalled about $19-billion.

"Mutual fund investors are back in the game," said strategist George Vasic of UBS Securities Canada Inc. "This is seven months in a row where the inflows have been stronger than the 10-year average, after having been under it for some time." (The 1995-2006 average for March was about $3.85-billion.)

"It's very healthy for the industry," concurred fund analyst Peter Loach at investment dealer BMO Nesbitt Burns Inc. "It's looking strong for this year."

Frank Hracs, who heads research firm Canadian Mutual Fund Analyst in Richmond Hill, Ont., was a little less ebullient.

While calling the first-quarter performance "robust," he figures the late February stock market drop that spread from Shanghai around the world capped mutual fund sales below potential.

"There definitely seems to have been an air pocket in March," he said. "When you adjust for seasonality and compare it to where it should have been, given what happened in the [preceding] four months, my estimate is that net sales were up to about $1-billion below where they could have been."

However, Mr. Hracs also said he expects that with equity markets back to record levels, April sales should be "more buoyant."

March net sales included $543-million in money market funds, compared with a net outflow of $554-million from that category in March a year ago. For the quarter, there was a net inflow to these funds of $682-million, compared with a year-earlier net outflow of $2.6-billion.

Domestic equity funds experienced a net outflow of $551-million in March and $2.7-billion in the quarter. This compared with year-earlier net inflows of $296-million and $1.03-billion, respectively.

Net sales by global and international equity funds, by contrast, came in at $1.4-billion in March, up from $725-million a year earlier, and at $6.6-billion for the quarter, up from $1.5-billion.

Domestic balanced funds topped the net sales chart in March, at $1.6-billion, although this was well down from $2.2-billion a year earlier, while the quarterly total came in at $5.2-billion, down $1.3-billion.

The next biggest sellers were global balanced funds, which recorded net sales of nearly $1.6-billion in March, up from $597-million, and at $5.4-billion for the quarter, compared with $2.1-billion.

Mr. Vasic said that the "huge inflow" into foreign equity and foreign balanced funds that has developed in recent months is not an exclusively Canadian development spurred by Ottawa's 2005 abolition of foreign content restrictions on pensions and registered retirement savings plans.

Mutual fund sales on the march

Net sales to March 31, excluding reinvested distributions, $million

Fund typeMarch, 2007March, 2006% change
Money market$543 - $554- 198.0
Long-term4,6134,02914.5
Domestic fixed income19611866.1
Global & high-yield fixed income120- 19- 731.6
Domestic balanced1,6512,207- 25.2
Global balanced1,575597163.8
Domestic equity- 551296- 286.1
Global & international equity1,453725100.4
U.S. equity10028257.1
Specialty825646.4
Sector equity- 1423- 160.9
TOTAL FUNDS$5,156 $3,475 48.4

SOURCE: INVESTMENT FUNDS INSTITUTE OF CANADA

© 2007 The Globe and Mail. All rights reserved.

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