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Investors flock to money market funds

FUNDS REPORTER

Shaky stock markets spurred Canadian investors to jump into money market funds with a vengeance in November as industry net sales plunged 31 per cent from a year ago.

Money market funds made up more than the $1.8-billion in net sales in November as long-term funds fell into net redemption, according to figures released yesterday by the Investment Funds Institute of Canada (IFIC).

Net sales totalled $2.6-billion in the same month a year ago.

"People are just reluctant to buy in the midst of capital market instability" in case the funds immediately lose their value, said Frank Hracs, chief economist with Toronto-based Credo Consulting Inc.

"Given what has happened in the last few months, the RRSP season is in some jeopardy to be sideswiped," said Mr. Hracs, author of the Canadian Mutual Fund Analyst publications. "The credit market concerns clearly have the potential to eat into what normally would have been a very robust RRSP season."

Stock markets have been in turmoil amid concerns about the economic impact of the credit crunch that has been triggered by the collapse of the U.S. subprime mortgage market. The S&P/TSX composite Index fell 6.2 per cent last month, and its mining subindex was off 15 per cent.

IFIC analyst Dennis Yanchus said that money market funds have taken in $3.4-billion in the last three months.

Investors stashed $1.87-billion into Canadian and U.S. money market funds in November, but there were also net redemptions of $63.7-million in long-term funds.

While investors were bailing out of money market funds in August because of concerns about troubled asset-backed commercial paper, Mr. Yanchus said that is no longer a worry because the fund companies have bought back the paper from their own funds.

He said that investors put $537-million in U.S. money market funds as a way to play the surging Canadian dollar versus the U.S. greenback. They are betting the U.S. dollar will recover lost ground.

Global and international equity funds were in negative territory last month because of market uncertainty and the negative impact of a rising Canadian dollar, he said.

"If you had invested money last RRSP season in global equities, the strong dollar will have affected your returns if they weren't hedged," he said.

As well, the credit crisis has taken a toll on financial stocks in North America and in Europe, Mr. Yanchus added.

Mutual fund sales

Net sales to Nov. 30, excluding reinvested distributions, $million

Fund typeNov. '07Oct. '07Nov. '06Year-to-date, '07Year-to-date, '06
Domestic equity- $334.1$2.8- $829.4- $6,019.6- $3,774.2
Global & International equity- $92.8$226.4$1,068.5$9,976.9 $4,377.5
U.S. equity$24.6$10.6$93.2$741.7 - $239.4
Sector equity$82.8$22.8- $45.1$539.0- $256.1
Domestic balanced$147.7$141.0$600.3$5,171.8 $8,130.4
Global balanced$609.3$786.7$1,209.0$16,950.4 $9,839.0
Domestic fixed income- $555.1- $257.0$35.7- $1,853.3$836.2
Global & high yield fixed income- $84.9$4.0$39.5$691.2 - $487.1
Specialty funds$138.7$261.70$171.3 $1,345.3 $786.3
Long-term funds total- $63.7$1,199.0$2,343.1 $27,543.3 $19,212.
Money market funds$1,873.7$1,213.3$265.50 $4,496.1 - $1,908.6
Total mutual funds$1,810.0$2,412.3 $2,608.6 $32,039.4 $17,304.0

SOURCE: INVESTMENT FUNDS INSTITUTE OF CANADA

© 2007 The Globe and Mail. All rights reserved.

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