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Mutual Fund News

May's sales show strength in long-term funds

FUNDS REPORTER

Canadian investors were eager to ditch the money market for long-term mutual funds in May, but net sales were still off 63 per cent from a year ago.

The industry attracted about $747-million in net inflows compared with $2-billion in the same month last year, according to preliminary figures released yesterday by the Investment Funds Institute of Canada (IFIC).

Net sales came totally from long-term bond or stock funds in May, while the lion's share of new cash last year was in money market investments.

"Now that we have had three months of pretty decent equity markets, we are starting to see people move back into long-term funds," Dennis Yanchus, IFIC's manager of statistics, said yesterday.

Long-term funds are more profitable for firms because they charge higher fees compared with money market funds, which are parking spots for cash and invest in short-term fixed-income securities.

"May could be very well be the strongest net demand month for long-term funds since July, 2007," said Frank Hracs, chief economist for Toronto-based Credo Consulting, which focuses on the financial services industry.

IFIC estimates that May's mutual fund net sales will be the strongest month since February - the key month in the RRSP season.

North American stock markets posted strong gains last month. The S&P/TSX composite index, which has a heavy weighting in commodity and financial stocks, climbed 11.2 per cent. The benchmark S&P 500 index rose 5.3 per cent.

"There is a strong correlation between net sales and positive equity performance," said independent fund analyst Peter Loach. "Investors are probably now confident that there is a floor to the downside, and are now committing more of their investments to equities as opposed to short-term interest-bearing instruments."

Rising stock prices were reflected in the stellar monthly returns of certain funds. Precious metals funds, which invest mainly in gold stocks, posted an average return of 22 per cent in May, while resource funds gained an average of 14 per cent, according to figures from Globe Investor.

Royal Bank of Canada's fund arm, which includes RBC Asset Management Inc. and Phillips Hager & North, was the leader with $665-million in net sales. That included $426-million for long-term funds.

Dynamic Mutual Funds, a unit of DundeeWealth Inc., took in $328-million in net sales. Funds run by managers such as Dynamic's Rohit Sehgal tend to be "high beta" so when markets recover, their funds do well and tend to attract a lot of money, Mr. Loach said.

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How the top 12 fund companies fared in May

Fund Company Total Net Assets of Mutual Funds Total Net Sales of Mutual Funds Total Net Sales of Long-Term Mutual Funds Total Net Sales of Money Market Mutual Funds
Millions
RBC$101,044$667$426$240
IGM Financial Inc. $89,249-$135$43-$178
CI Financial Corp.*$54,880$136$149-$13
TD Asset Management $49,203$180$302-$122
CIBC Asset Management $42,216-$591$155-$746
Fidelity Investments Canada ULC$37,847$152$245-$93
BMO Financial Group$31,224$220$147$73
Invesco Trimark Ltd.$27,715-$327-$293-$34
AGF Management Ltd.$20,907-$42-$28-$14
Dynamic Mutual Funds $19,575$328$361-$33
Franklin Templeton Investments$18,844-$2$32-$34
Scotia Securities Inc. $17,887$207$151$56
*CI Financial Corp. is not a member of the Investment Funds Institute of Canada. Its figures include mutual
and segregated funds.
Source: Investment Funds Institute of Canada, companies

© 2007 The Globe and Mail. All rights reserved.

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