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Bear market generates new funds


The bear market may not be all bad for the fund business.

Investor jitters have spurred companies to create more products, ranging from ultra-conservative managed portfolios to new shorting strategies.

The fund arm of Royal Bank of Canada launched a conservatively managed fund portfolio this week with 80 per cent in fixed income and the balance in equities as part of its RBC Select Portfolios lineup.

"It's a very nerve-racking period for clients," said Jonathan Hartman, vice-president of investment products with RBC Asset Management Inc.

RBC and sister firm Phillips Hager & North Investment Management have about $25-billion sitting in money market funds.

That's about 30 per cent of total assets compared with 15 to 18 per cent in the past. The market meltdown may have reduced the risk tolerance of many investors who are looking to redeem stock funds and go into cash, Mr. Hartman said.

"At the same time, you have clients who are sitting in cash wondering at what point do I get back in," he added.

While the new RBC fund portfolio, which now includes PH&N funds, is conservative, it is not like being totally in fixed income or cash - investors can still lose money.

"But it provides clients with some equity exposure as a way to have some potential upside."

Twenty per cent of the new portfolio also includes stocks funds ranging from RBC Canadian Equity to the RBC European and RBC Asian Equity. The new portfolio is part of five asset-mix options, which total about $9.5-billion in assets under management.

Toronto-based Horizons BetaPro Management Inc., which is known for its bull- and bear-plus exchange-traded funds, is launching another series of bearish ETFs. These offerings can emulate a shorting strategy in betting certain markets or sectors will decline.

The new line of "inverse ETFs" are designed to give the daily inverse performance of an underlying index as opposed to twice the opposite return in its traditional bear-plus product.

Tomorrow, Horizons BetaPro will launch the HBP/TSX Energy Inverse ETF, which tracks the S&P/TSX capped energy index, and the HBP/TSX Global Gold Inverse ETF, which follows the S&P/TSX global gold index.

The firm set the wheels in motion last week with two other inverse ETFs - one tied to the S&P/TSX 60 index and the other to the S&P/TSX capped financials index.

"It will appeal to some investors - both retail and institutional - who want the ability to get performance opposite the index without the leverage in our existing bear-plus ETFs," said Horizons BetaPro president Howard Atkinson.

© 2007 The Globe and Mail. All rights reserved.

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