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Canadians adding more long-term funds to RRSPs

Return to stock, bond and balanced funds a sign of confidence, but not an appetite for risk


Canadian investors plowed $3.1-billion into long-term stock and bond funds in January - the first month of the registered retirement savings plan season.

Balanced funds continued to be the favourite long-term investments, while investors redeemed $2.4-billion in money market funds, according to figures released yesterday by the Investment Funds Institute of Canada (IFIC).

There were $2.3-billion in balanced fund net sales, while bond funds attracted $807-million.

"It's the second-best January for long-term funds over the last decade," said Frank Hracs, senior economist with Toronto-based Credo Consulting.

"Investors are feeling much better than a year ago, and that is justified by the underlying improvement in the economy and equity markets."

The long-term fund figure is a reversal of January, 2009, when these investments suffered from $195-million in net redemptions as stock markets continued their steep tumble.

"A year ago, we were still going down in the equity markets to March, so last year's RRSP season was totally sabotaged by that environment," Mr. Hracs said in an interview.

"The reversal has been in place for the last nine months. Since the spring of 2009, there has been very solid reacceleration of long-term fund demand, and it is now in roughly normal territory."

The fund industry posted $694-million in total net sales in January versus $1.2-billion a year ago, when all that cash flowed into money market funds.

Long-term fund net sales is a key industry number because these funds are more profitable than short-term money market funds.

But investors are still leaning toward balanced and bond funds because "they are still very cautious" after the steep market downturn that began in 2008, Mr. Hracs said.

While global stock markets rebounded last year, investors got a new taste of market volatility in January. The S&P/TSX composite index fell 5.6 per cent last month, while the S&P 500 index slid 3.7 per cent.

"It will probably be many months before there is any real solid recovery in equity-fund demand," he said. "There are no signs of that at the present."

With nearly $30-million in net sales, equity funds moved into positive territory in January for the first time since May, 2009. But that figure is not reflective of investor appetite for more risk.

That's because the overall net sales figure for equity funds also incorporates about $300-million in net inflows recorded by DundeeWealth Inc.'s Dynamic Funds, stemming from flow-through limited partnerships sold through its Goodman Co. & Investment Counsel unit. Flow-through shares are investments offering tax advantages for investors, but whose assets automatically flow into an equity mutual fund after a couple of years.

Mutual fund sales in January

Net Sales ($ Millions)
Broad Asset Classes Jan. 2010 Dec. 2009 Jan. 2009
Equity Funds29.7-639.2-376.2
Balanced Funds2,268.01,706.2-152.1
Bond Funds806.51,353.0319.3
Specialty Funds31.946.914.5
Long-Term Funds Total3,136.12,467.0-194.5
Short-Term Funds-2,442.6-2,272.91,365.1
Total Industry 693.5 194.1 1,170.6
Source: Investment Funds Institute of Canada

© 2007 The Globe and Mail. All rights reserved.

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