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Mutual Fund News

Fund sales surge in July but downturn foreseen

FUNDS REPORTER

Canadians plowed $3-billion into mutual funds in July, but the robust sales of recent months are now expected to head south as investors get spooked by the market turmoil, analysts say.

Net sales surged from $683-million in the same month a year earlier, and are the highest since hitting $4-billion in July, 1997, according to figures released yesterday by the Investment Funds Institute of Canada, an industry group.

"It was a spectacular month, with most firms firing on all cylinders," said Peter Loach, a vice-president and managing director of fund research at BMO Nesbitt Burns Inc.

But fund sales are expected to be "considerably weaker" for August because of the recent volatility, Mr. Loach said in an interview. "If I had to forecast, it could be anywhere from net redemptions of up to $100-million to net sales of about $400-million."

Until recently, investors have been on a buying spree as markets kept heading higher, and were influenced by the recent past performance of many mutual funds, he said.

The S&P/TSX composite index climbed to a record high of 14,625.76 points on July 19, but has since fallen 8 per cent to close yesterday at 13,427.45.

While investors historically head for the exits by investing in cash or money market funds in a downturn, it is the time they should consider buying, Mr. Loach said. But investors should stick with "well-managed, diversified" Canadian or foreign stock funds instead of sector fund plays, he said.

Frank Hracs, who heads research firm Canadian Mutual Fund Analyst, also described July as a "superb month" despite some market volatility, but he, too, expects fund sales to dampen this month. "August will likely be affected by the capital market instability.

"Seasonally it is also the weakest month of the year because everyone is on holidays, and activity is at its lowest, in contrast to RRSP season when it is at its highest," he said.

RBC Asset Management, the fund arm of Royal Bank of Canada, was the leader in July, with $477-million in net sales. IGM Financial Inc., which includes Investor Group Inc. and Mackenzie Financial Corp. and Counsel Group of Funds, took in $373-million. And Dynamic Mutual Funds Ltd. racked up $280.9-million. CI Financial Income Fund, which is not a member of IFIC, had net sales of $257-million.

In July, $2.6-billion of net sales went into long-term funds (excluding money market investments). And investors also continued their love affair with foreign funds.

Global balanced funds, which hold a mix of stocks and bonds, and global and international stock funds made up 63 per cent of net sales in July.

"In terms of diversifying geographic risk, investors are doing that," said Erwin Go, manager of statistics for IFIC. "Removal of the foreign content restriction [by the federal government in registered retirement savings plans] has enabled Canadians to invest anywhere in the world."

Global balanced funds were the favourite in July

Investors continue their love affair with foreign funds.

(in billions of Canadian dollars)

Equity funds July 2007 July 2006 2007 2006 Absolute change
Domestic equity (49) (523)(4,217)(1,369)(2,848)
Global & International equity 600 169 9,6892,896 6,793
U.S. equity 67 271 517 64 453
Sector equity 69 (82) 533 64 450
Balanced funds
Domestic balanced 494 7239,15610,016 (860)
Global balanced1,286 959,702 3,398 6,304
Bond funds
Domestic fixed income (20) (79) 2 786 (784)
Global & high yield fixed income 13 (37) 431 (993) 1,424
Speciality funds 140 123 552 327 224
Long-term funds 2,600 660 26,365 15,209 11,156
Money Market funds 393 23 2,007(3,806) 5,813
All funds 2,993 683 28,372 11,403 16,969

SOURCE: THE INVESTMENT FUNDS INSTITUTE OF CANADA

© 2007 The Globe and Mail. All rights reserved.

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