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Mutual Fund News

RRSP season redeems fund sector

'Certain investors saw it as a buying opportunity' as a total of $3.4-billion was injected despite market turmoil



Canadians plowed $3.4-billion into mutual funds during the key RRSP season, far better than was expected during the worst market turmoil in decades.

Still, while the net sales of funds plunged 62 per cent from the year-ago quarter, the gloomy predictions of heavy redemptions didn't materialize.

"I'm surprised that the number was as strong as it was considering how bad world equity markets were," independent fund analyst Peter Loach said yesterday in an interview.

The S&P/TSX composite index plummeted 35 per cent in 2008. South of the border, the S&P 500 index sank an even steeper 38.5 per cent.

There is often a strong correlation between fund flows, and the six- to 12-month trailing performance of the stock markets, Mr. Loach said. "The fact that it is positive is encouraging for the industry."

The quarter was not as bad as the registered retirement savings plan season of 2003 when the industry suffered from $322-million in net outflows after the technology bubble bust.

In this year's quarter, however, "certain investors saw it as a buying opportunity, and invest whether markets are good and bad," he said. "But a lot went into money market funds so they are just getting the tax slip and making sure their investments are safe."

There were net redemptions of $348-million in the more profitable long-term stock and bond funds in the quarter, but that was sharply lower than net outflows of $1.3-billion in the same period in 2008, according to figures released by the Investment Funds Institute of Canada (IFIC).

This is the second consecutive year of net redemptions for long-term funds. They charge higher fees than money market funds, which are seen as safe but give little return.

Included in IFIC's final tally for the key three-month registered retirement savings plan season was the $520-million total net sales figure for March. The bulk of the new cash flowed into money market investments with bond funds the second favourite.

While there were net redemptions of $115.2-million in long-term funds last month, these investments have been showing "progressive underlying improvement versus the extreme net redemptions of late 2008," said Frank Hracs, chief economist at Toronto-based Credo Consulting Inc.

"While investors remain cautious about the economic landscape, there is now implicitly little fear about a systemic economic or financial system collapse as was clearly the case last fall."

The Canadian fund business suffered from net redemptions from last fall, including a record withdrawal of nearly $8-billion last October.

With the rising net sales and the growing value of funds from a market rebound in March, industry assets grew 4.3 per cent to $497.4-billion. The figures exclude data from Toronto-based CI Financial Corp., which is not a member of the industry group.

© 2007 The Globe and Mail. All rights reserved.

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