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Mutual Fund News

Long-term funds start to catch investors' eyes

FUNDS REPORTER

Canadians were returning to stock and bond investments as they stashed marginally more cash into mutual funds in April compared with a year ago.

As global markets rebounded, the industry attracted about $507-million last month compared with $457-million in April a year ago, according to preliminary figures released yesterday by the Investment Funds Institute of Canada (IFIC).

"It's pretty much the same as last year, but the big difference is composition," Dennis Yanchus, IFIC's manager of statistics, said in an interview.

"Last year, it was all money markets, but this year it's long-term funds, so it is significant," Mr. Yanchus said. "Investors are moving back into the market, maybe feeling more confident. It's certainly not a wave but it's certainly in the right direction ... We've had a couple of months of fairly good equity markets."

Long-term stock and bond funds are more profitable because they charge higher fees compared with money market funds, which are perceived to be safe parking spots for cash but provide little returns.

The new trend in flows comes as stock markets have come back with vengeance from their March 9 lows. The S&P/TSX composite index and S&P 500 index, respectively, have gained 23 and 29 per cent since then.

While there were flows into bond funds in February and March, "we still had a lot of money market funds," Mr. Yanchus said.

"In April, we don't have that ... It could be close to zero going into money market funds when we get the final data [later this month]."

Frank Hracs, chief economist at Toronto-based Credo Consulting Inc., said the amount of cash flowing into long-term funds in a seasonally weak month is "encouraging evidence that retail investors are starting to buy into the eventual economic recovery theme. ... Since there has been almost two years of widespread aversion to long-term funds among investors, the demand recovery over the near term could be surprisingly robust."

During April, some specialty fund categories made stellar gains. The financial service equity funds climbed an average of 17 per cent; real estate equity, 15 per cent; and emerging markets, 12 per cent.

"The interest-sensitive financial and real estate sectors had a double-digit rally," said independent fund analyst Peter Loach. "When rates fall, interest-sensitive stocks do very well."

Emerging market funds are also gaining strength on expectations that China is going to be an economic leader in pulling the global economy back on track, Mr. Loach said.

Last month, Royal Bank of Canada, which includes RBC Asset Management Inc. and Phillips Hager North Investment Management, was the leader with $818-million in net sales. Scotia Securities Inc. attracted $179-million in net inflows, while CIBC Asset Management suffered from $126-million in net redemptions.

Among the publicly traded fund companies, DundeeWealth Inc.'s Dynamic Mutual Funds reported $112-million in net sales. IGM Financial Inc., which owns Investors Group and Mackenzie Financial, saw $246-million in net redemptions, while AGF Management Ltd. experienced $47.6-million in net outflows.

CI Financial Corp., which is not a member of IFIC, posted net sales of $59-million.

© 2007 The Globe and Mail. All rights reserved.

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