Mutual fund sales will remain vigorous in 2006, IFIC projects

By Reynaldo Marquez | February 18 2006 08:57PM

Sales of mutual funds with a long-term investment objective should remain vigorous in 2006, says Erwin Go, statistics acting manager at the Investment Funds Institute of Canada (IFIC).

The solid progress expected from the Canadian stock market this year should maintain upward pressure on sales of these investment vehicles, echoing 2005, Mr. Go explained.

In 2005, net mutual fund sales literally exploded. On December 31, net sales soared by 59% to reach $24.3 billion, compared with $14.7 billion the previous year.

Assets under management grew by nearly 15% to reach $570 billion during the same period, IFIC stated in its annual report on the mutual fund industry.

Mr. Go pointed out that mutual funds with a long-term investment horizon were buoyed by steady sales. In the last three years, Canadian investors regained confidence in the stock markets, which explains their growing interest in long-term investments.

“Provided we have strong financial markets, this will continue in 2006. What matters most to investors is the bottom line performance of their portfolio. Investors shied away from long-term investments in early 2001 because of the bad performance of the markets then. But with the markets turn around in 2003 and S&P/TSX, strong performance in 2005, investors are increasingly looking at investing for the long term,” he said.

The solid performance of the Canadian stock market in 2005, with the S&P/TSX index surging ahead by 22%, largely ignited this boom in net sales, Mr. Go confirmed.

This performance also explains investors’ massive stampede from money market funds, known for their short-term investment horizon, Mr. Go added.

The S&P/TSX index should retain its momentum in 2006. A survey by the firm Watson Wyatt Worldwide shows that the majority of the 54 respondents, financial institutions operating in Canada, including the main banks and fund management firms, estimate that the index will end the year with an eight per cent gain.

Another sign of Canadian investors’ confidence in the economy: the elimination in 2005 of the tax rule that bars Canadian from holding more than 30% foreign content in their RRSPs did not prompt a mass exodus of Canadians’ funds to foreign investments.

In addition, balanced funds ballooned considerably in 2005. These funds generated half of net sales, or nearly $12.5 billion.

Dividend equity and income trust funds, with three-year returns of 17% and 24% respectively, were also quite popular with investors.

In terms of assets under management, Manulife Investments reported the most spectacular rise in assets, at 59% (see table). On December 31, Manulife’s investment assets stood at $7.8 billion, versus $4.8 billion the previous year.

Some Canadian banks once again dominated the Top 10 list of largest players. In 2005, BMO Investment Fund’s assets under management were up 27.5% since 2004, at $25 billion.

RBC Asset Management posted an increase in assets of 24.2%, while assets of Fédération des caisses Desjardins increased by 24% in the same period.