Pull out about $730-million in December amid wild stock market moves

SHIRLEY WON

Canadian investors continued a flight from mutual funds in December, pulling out about $730-million amid wild stock market gyrations and opportunities for tax-loss selling.

The net outflows are projected to be below $909.8-million in withdrawals in November and a record $8.4-billion in October, according to figures released yesterday by the Investment Funds Institute of Canada (IFIC).

“Investors are still waiting on the sidelines,” Dennis Yanchus, IFIC’s manager of statistics, said in an interview.

There was an estimated $1.7-billion in net sales of money market funds last month, but the outflows in long-term stock and bond funds kept the industry in net redemptions, he said.

It’s not surprising that investors are still pulling from funds given the market volatility and last-minute tax-loss selling, Mr. Yanchus said.

Investors who may have redeemed units in funds when stock markets peaked earlier in the year could be reducing their tax burden by selling funds deep in the red.

The S&P/TSX composite index ended up 0.87 per cent in December after a year-end rally pulled the benchmark from a 13-per-cent plunge during the month. By the end of the year, the index was down a depressing 32.4 per cent.

South of the border, the S&P 500 index edged up 0.78 per cent by the end of December after sliding 8.9 per cent earlier in the month. For 2008, that index was down 38.5 per cent.

The dampening of the net outflows may have stemmed from investors trying to make the Dec. 31 deadline for contributions to registered education savings plans (RESPs), while others are starting to put some cash into registered retirement savings plans, Mr. Yanchus suggested.

“Going into the RRSP season, it is going to be interesting,” he said. “If we see equity markets having some kind of floor we may see people move back into long-term funds.”

Starting in December, the IFIC statistics no longer include data from CI Financial Corp. (formerly CI Financial Income Fund). The fund giant has opted to no longer submit data to the industry group. Even though CI was not a member of IFIC, it did provide numbers to the organization in the past.

In November, CI said it posted net sales of $140-million. Mr. Yanchus said that number was sales of segregated funds, which are not counted by IFIC. “Their mutual funds were in net redemptions,” he said.

CI, which has just converted back to a corporation from an income trust, said yesterday that it had net sales of $142-million in December, and $1.8-billion for 2008. It does not break out segregated from mutual funds.

But CI indicated that the December sales number includes $116-million in the higher-margin long-term funds and $44-million in money market funds. There was $18-million in net redemptions.

RBC Asset Management, which also owns Phillips Hager & North Ltd., was the leader in net sales, attracting $680-million. That figure includes $1.1-billion in money market funds, which was offset by net redemptions of $433-million in long-term funds.

Frank Hracs, senior economist with Toronto-based Credo Consulting Inc., suggested that the recovery in fund demand last month compared with the selling binge in October, and the late December rally in global stock markets “have greatly increased the odds of at least a moderately positive RRSP season.”

Beyond the first quarter, the balance of the year could see a recovery in long-term funds as equity markets price in an economic recovery well ahead of time, Mr. Hracs added.

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December fund results

Net sales (in Millions of Dollars)

RBC Asset Management Inc.*   $680

Fidelity Investments Canada  $250

CI Financial Corp.**  $142

Manulife Investments  $168

Dynamic Mutual Funds  $75

Standard Life Mutual Funds Ltd.  $18

Hartford Investments Canada Corp.  $13

Net redemptions (in Millions of Dollars)

Invesco Trimark Ltd.  $482

BMO Financial Group  $292 

IGM Financial Inc.***  $286 

CIBC Asset Management  $215 

Fonds Desjardins  $176 

Franklin Templeton Investments  $133

AGF Management Ltd.  $104 

*Includes Phillips Hager & North Ltd.

**CI is not a member of IFIC. The number includes segregated funds not counted by IFIC.

***Includes Investors Group and Mackenzie Financial Corp.

KATHRYN TAM/THE GLOBE AND MAIL; SOURCE: INVESTMENT FUNDS INSTITUTE OF CANADA