January 2008 was named the highest-ever month for redemptions of long-term mutual funds, the bread and butter of the retail funds industry, according to the latest data from the Investment Funds Institute of Canada. If it weren’t for unusually strong sales of money market funds, the industry would have finished the month in terms of overall net redemptions.
According to IFIC, net redemptions in long-term funds totaled more than $4.3 billion, while sales in money market funds reached a staggering $4.8 billion. Overall, the industry ended the month with net sales of $460.5 million, down from $2.9 billion in December 2007 and $4 billion in January of last year. Industry assets fell 3.7% from December and 0.3% from January of last year, ending the month at $671.6 billion.
Rudy Luukko, mutual fund editor at Morningstar Canada, says these numbers show investors aren’t leaving the mutual fund industry just yet. Instead, it indicates a transfer of wealth from long-term funds to money market funds as investors adopt a wait-and-see attitude and park their investments in cash equivalents until market volatility stabilizes.
“Total industry assets declined by $20.7 billion, but the main contributors were market depreciation and net redemptions of long-term funds,” Luukko says. “The concerns we are seeing about a continuation of the recent market downturn are keeping investors on the sidelines. Industry assets have declined, but investors do not appear to be leaving the industry in large numbers.”
There is definitely a reversal in buying trends. Last year, the best-selling categories were mainly long-term balanced funds. Some of these categories are now among the most overbought.
“Balanced funds were by far the best-selling fund types in 2007. If we look at sales by category, sales of previously popular balanced funds also appear to have collapsed, at least temporarily,” Luukko says. “The second most overbought category last month was Canadian Equity Balanced at -$943 million. The fifth category was Global Balanced with -$301 million.”
Luukko notes that redemptions in long-term funds were widespread. Almost every asset class was redeemed.
“While net redemptions were not evenly distributed, there appeared to be a negative trend across a broad range of asset classes,” he says. “There was no specific flight from equity funds or foreign or domestic assets.”
Interestingly, one of the categories that managed to increase net sales was target maturity portfolios. In 2015, target maturity portfolios were the fifth best-selling asset class.
“We continue to see strength primarily in money market fund sales as capital markets remain turbulent,” says Pat Dunwoody, IFIC’s vice president of member services and communications. “Highly diversified and customized target-date portfolios saw sales of $165 million and were the preferred investment for long-term investors.”
Luukko says that on a company-by-company basis, established money market fund providers appear to have managed record sales. For the most part, these were fund companies owned by banks.
RBC Asset Management has once again dominated fund sales with its money market offerings. It had $1.9 billion in net sales in its money market funds, although its total net sales were lower due to about $202 million in repurchases of its long-term funds.
In money market sales, RBC was second to TD Asset Management, which had net sales of $729 million in that category, but like RBC, it saw redemptions in its long-term sales. Total net sales were $394 million.
Very few firms reported net sales in long-term funds. Desjardins reported more than $520 million in long-term sales, but as Advisor.ca reported earlier this month, Desjardins’ strong sales performance was largely due to structural changes in some co-branded funds of funds that were converted to regular mutual funds using a segregated account with a portfolio manager.
The worst of the worst redemptions was by AIM firm Trimark Investments, which suffered losses of $817.7 million in redemptions from long-term funds.
Submitted by Mark Noble, Advisor.ca, mark.noble@advisor.rogers.com
(15.02.08)
