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Downsizing hits number of fund offerings

Latest move to reduce product options comes as Canadian industry reported net redemptions of $792-million last month

FUNDS REPORTER

The stock market collapse and rising redemptions are forcing mutual fund companies to downsize their assorted product offerings to investors.

Acuity Funds Ltd. yesterday said it is seeking unitholder approval to merge its smaller Acuity Global Equity into its Acuity Global Dividend fund, and Acuity Pure Canadian equity into its Acuity Canadian equity fund.

The latest move to reduce fund flavours comes as the Canadian industry reported net redemptions of $792-million in December - the fourth consecutive month in net outflows, according to the Investment Funds Institute of Canada (IFIC).

"Generally, with bear markets, you are going to see a so-called rationalizing of products," fund analyst Dan Hallett said yesterday in an interview.

"The common denominator is a low asset base, and not a great expectation from flows going forward for net sales."

With smaller and new funds, there are fixed costs that keep management expense ratios (MER) high in the early days, but a fund company will often subsidize fees to keep the product competitive, he said.

"A company is only willing to do that for a certain period of time."

A decision has to be made to lift the subsidy, or leave unitholders to pay increasing costs or wind down a fund, Mr. Hallett said. "This is always the risk of buying a newer fund."

Acuity will hold a unitholder meeting on or around March 12 to merge its global and Canadian equity funds.

"It just makes sense to merge some of the smaller funds into the larger funds because it gives more economies of scale and lowers fees for unitholders," said Stephen Crawford, Acuity's national sales manager. "Smaller funds have higher fees."

The $32.5-million Acuity Global Dividend fund has management fees 0.10 percentage points lower than the $12.1-million Acuity Global Equity Fund, Mr. Crawford said.

Toronto-based Acuity's decision to merge funds follows on the heels of last week's move to wind down the currency-neutral versions of three global funds, and corporate class versions of two stock funds. Unitholders can switch into other Acuity funds or redeem their units.

"There is not much money going into the industry," Mr. Crawford acknowledged.

Toronto-based Acuity, which has seen mutual assets fall to $3.2-billion from nearly $4-billion in May, 2007, has also experienced net redemptions since August, 2007.

While Globefund, The Globe and Mail's mutual fund website, indicates that Acuity offers more than 60 funds, five funds make up about 85 per cent of the assets, Mr. Hallett said. "That implies they have a lot of small funds, including the ones they are trying to tidy up."

The Canadian industry has suffered from monthly net outflows since last September, but the December outflows are down sharply from a record $8.4-billion in October.

In December, the S&P/TSX composite index fell 3 per cent after rebounding from a 13-per-cent plunge earlier in month, and closed off 35 per cent for the year.

With increased market volatility, net sales in December focused on money market funds - essentially a parking spot for cash. The category took in $1.8-billion last month, up from $1.4-billion in November.

All equity classes experienced net outflows. Domestic equity funds had net outflows of $158.2-million in December, but slowed from $374-million in the previous month.

*****

Mutual fund net sales by asset class

$millionDec., '08Nov., '08Dec., '07
Domestic equity- $158.2- $374.- $281.1
Global & international equity- $766.7- $482.3$91.1
U.S. equity- $72.9- $2.0- $182.3
Sector equity- $31.8- $43.4- $24.1
Domestic balanced- $638.2- $860.0$189.2
Global balanced- $126.9- $187.6$560.7
Domestic fixed income- $769.7- $453.5- $82.5
Global & high yield fixed income$26.5$62.8- $81.5
Specialty funds- $41.5- $15.7$85.1
Long-term funds total- $2,579.4- $2,355.7$274.7
Money market funds$1,787.4$1,378.5$2,438.8
TOTAL- $792.0- $977.2$2,713.5

DOUGLAS COULL/THE GLOBE AND MAIL

SOURCE: INVESTMENT FUNDS INSTITUTE OF CANADA

© 2007 The Globe and Mail. All rights reserved.

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