Skittish investors fled mutual funds in November, yanking about $1.1-billion from an industry that could suffer its worst RRSP season in memory.
Last month's net outflows, however, fell from a record $8.4-billion in October and $4.5-billion in September, according to preliminary data released yesterday by the Investment Funds Institute of Canada.
The industry still faces what "could be the worst RRSP season because of the volatile nature of the markets," suggested independent fund analyst Peter Loach. "Many have not experienced this kind of downturn in their lifetime."
The S&P/TSX composite index has plunged 40 per cent so far this year, including a brutal 9-per-cent decline on Monday alone. By the end of November, the index was off 33 per cent after a 5-per-cent tumble during the month.
South of the border, the S&P 500 index has shed 42 per cent so far this year. By the end of November, it was down 39 per cent for 11 months.
"I wouldn't be surprised if you see much higher than historical numbers going into guaranteed investment certificates, and even savings bonds - anything that is truly safe," Mr. Loach said.
The registered retirement savings plan season, which includes the first three months of the year and is the key selling period, suffered $2.3-billion in net outflows in 1995, and $499-million in 2003.
For higher-margin, long-term funds, which exclude money market investments, the worst RRSP season was the first quarter of this year when there were $1.5-billion in net outflows.
Bill Holland, chief executive officer of CI Financial Income Fund, said the industry did not fare as badly in November as some might have expected given the market turmoil.
That could be due to the fact that November has traditionally been the third best month for sales after February and March, Mr. Holland said.
Still, he expects the industry to suffer its most brutal RRSP season next year in long-term funds. "The redemption dollar value of long-term assets will be higher than 2008," he predicted. "We have gone through the most difficult 90-day period ever, and so to think that it won't impact the sales would be unrealistic."
CI, which posted $140-million in net sales last month, should stay in positive territory during RRSP season, he said, adding his firm offers other products like segregated funds that are "still selling well."
Dan Hallett, a Windsor, Ont.-based fund analyst, agrees the RRSP season could be depressing. "There is a pretty good chance of seeing net redemptions during RRSP season" for all funds, he said.
Unlike the last bear market from 2000 to 2002, when the Internet bubble burst, the current downturn will make it tougher for the industry to attract investors, he said.
Fund flows didn't suffer as much then because equity investments like value, dividend and income trust funds still did well, he said.
"There were a lot of places to hide,' Mr. Hallett added. "Because the [recent] decline has been so broad-based, the sentiment is more negative over all."
Working in favour of the industry is the new tax-free savings accounts that officially begin Jan. 1 whereby investors can invest $5,000 and avoid paying capital gains, he noted.
"Whether that will be enough to offset the negativity that investors are feeling as a result of the markets remains to be seen."
Last month, CIBC Asset Management experienced net outflows of $391-million; Bank of Montreal, $222-million, and National Bank Securities, $157-million.
IGM Financial Inc., which includes Investors Group and Mackenzie Financial, suffered from $109-million in net redemptions; AGF Management Ltd., $124.5-million; and DundeeWealth Inc., which owns Dynamic Funds, $70-million.
Invesco Trimark Ltd. also had $359-million in net outflows; Franklin Templeton Investments Corp., $102-million and Brandes Investment Partners, $53-million.
Fidelity Investments Canada led the industry with net sales of $263-million and Manulife Investments with $177-million.
Frank Hracs, chief economist with Toronto-based Credo Consulting Inc., said that the net outflows were not as dramatic as October, but he believes that "the level of confidence or fear still remains at October levels ... .
"It's still contingent on a month-by-month basis," Mr. Hracs said. "If we continue to see the kind of equity market volatility that we have been getting - even as of Monday, and if that persists for another couple of months - obviously that is going to significantly erode any RRSP demand potential."
© 2007 The Globe and Mail. All rights reserved.
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