A soaring Canadian dollar helped a rebound in sales of money market funds and domestic Canadian stocks in October, according to the latest statistics from the Canadian Mutual Fund Institute.
With total industry sales totaling $2.4 billion per month, sales more than doubled from September’s total of nearly $994 million. Strong money market sales accounted for just over half of total sales.
“Investors moved $1.2 billion into money market funds this month, representing the highest inflow of money market funds since December 2001,” says Pat Dunwoody, IFIC vice president of member services and communications. “The estimated market effect for long-term funds has averaged -0.1% per month over the past six months, which likely contributed to the popularity of money market funds this month. However, capital markets performed well in October, with assets under management rising to $709.8 billion, an increase of $8.4 billion compared to September.
Rudy Luukko, mutual funds editor at Morningstar Canada, says the industry has nothing to get excited about because money market funds are traditionally the least profitable type of fund. Long-term fund sales in October were actually slightly lower than a year ago.
Luukko also notes that most money market fund flows flowed primarily to three large bank-owned firms: RBC Asset Management, TD Asset Management and CIBC Asset Management. The three companies’ net sales in money market funds were $1.18 billion.
“The main beneficiaries were three large banks that had no exposure to the struggling non-bank-sponsored sector of the ABCP market,” Luukko says.
October was also marked by a return to Canadian stocks. Four of the top five sales in CIFSC categories were in domestic funds categories, accounting for $1.9 billion, or 84% of the total top five sales. Domestic equity funds achieved net sales of $2.8 million in October, marking the first positive month since March 2006.
The IFIC report said the rapid rise in the Canadian dollar against most currencies in October likely contributed to this result.
“The recent currency depreciation is testing some of the beliefs investors and their advisors have about the wisdom of international diversification,” Luukko says. “The topic of foreign investment remains intact. Looking at sales by CIFSC category, (i) after money market funds, the best-selling long-term category was sustainable global capital.
Luukko attributes this more to investors’ commitment to conservative diversification than real concern about the fund’s performance.
“(Investors are concerned about) anything other than performance chasing because fund returns in the sustainable global equities category have been modest. “Last month, the return on the Morningstar Equity Balance Index was essentially flat at 0.1%,” he says. “If you look at the statistics since the beginning of the year, these funds also remain basically unchanged – they decreased by 0.6%. According to the Morningstar Balance Index, which is a weighted average of all funds in this category, for 10 months of this year it was -0.6%.
The three most frequently purchased funds continue to be Canadian asset classes, led by Canadian equities, although the category has significant foreign content. After Canadian equity-focused stocks, the next most frequently purchased categories were Canadian balanced stocks and Canadian fixed income stocks.
There were big winners and big losers among individual fund companies. In October, RBC Asset Management maintained its position as a giant with net sales of $914 million, including $583 million in money market funds. Luukko says the RBC Premium Money Market Fund alone had net sales of $386 million.
Dynamic Mutual Funds led the industry in long-term fund sales with $403 million. This was somewhat offset by approximately $10 million worth of money market fund redemptions.
Funding provided by insurers also appears to be doing well. Manulife Investments had net new sales of $261 million. In terms of timing, these strong sales coincide with the announced guaranteed term extension of its popular IncomePlus line of segregated funds.
With almost $146 million in net new sales, IA Clarington Investments continued to grow and is just behind Manulife in terms of assets under management, in stark contrast to the next largest funds company, AIC Limited, which continues to decline, with redemptions of $146 million.
AIC’s troubles in October pale in comparison to those of AIM Trimark Investments, which had $336 million in write-offs. Luukko says the Trimark Income Growth Fund was the company’s biggest loss and resulted in $136 million in write-offs. The equity part of the fund was previously managed by star manager Geoff MacDonald, who left AIM Trimark in August and was replaced by Don Simpson.
Posted by Mark Noble, Advisor.ca, mark.noble@advisor.rogers.com
(15/11/07)
