Heartened by a gradual summer thaw in the markets, Canadian investors emerged from their shells in June and gingerly abandoned the safety of money market funds, according to recent statistics released by the Investment Funds Institute of Canada (IFIC).
Money market funds recorded net redemptions totalling $2.8 billion in June, up from $992.9 million in May and -$1.22 billion in June 2008, as some investors moved back into long-term funds and alternative interest-bearing investments.
Year-to-date money market fund sales stood at $360.2 million, compared with $13.49 billion in June 2008. Long-term fund sales on the other hand ballooned to $1.97 billion — the highest result for June since 1997.
While long-term fund net sales partially explained the large money market fund net redemptions in June, other factors such as the relative yields on money market funds compared to other substitutes explained the rest.
Money market funds have been in net redemption territory since April as investors have begun to move off the sidelines and back into long-term fund categories.
According to Pat Dunwoody, IFIC’S vice-president of member services and communications, institutional and retail investors who moved into money market funds in 2007 and 2008 when yields were relatively high, are now moving out of money market funds and into other interest-bearing instruments as yields have fallen.
Over the spread of the downturn, investors have hoarded a total of $18.99 billion in money market funds. While the bulk of these sales were due to investor reaction to the slump in equity markets, another significant source of the inflows was the inflow of investors, both retail and institutional, who were seeking the yield and safety of money market funds but who weren’t traditionally mutual fund investors. The IFIC says it isn’t surprising that as yields have fallen and credit markets have improved, these investors have begun to move out.
Long-term fund assets increased by $11.9 billion or 2.6% from the previous month to end June at $476.6 billion. The month-over-month increase in long-term fund assets was lower than the three-month average increase of 4.1% per month but was well above the six-month (1.5% per month) and 12-month averages (-1.5% per month).
Over the last three months, long-term fund assets increased by $54.1 billion, $4.5 billion of which came from net sales and $49.6 billion was due to market effect.
For the industry as a whole, assets increased by $9.3 billion (1.7%) in June with the positive market effect of $10.1 billion partially offset by $834.7 million in net redemptions. Industry assets under management grew at a slower rate than the three- month average of 3.2% per month and at a slightly higher rate than the six-month average of 1.3% per month. Year-to-date industry assets under management increased by $40 billion, of which $3.8 billion came from net sales and $36.2 billion was due to market effect.
The same bullish sentiment pervaded south of the border, as investors returned to mutual funds during the second quarter, even while they stayed cautious with the riskier funds, according to a new report from Strategic Insight Mutual Fund Research and Consulting LLC.
According to the report, investors poured most of their money into bond funds, which attracted $90 billion of the net flows during the second quarter. Equity funds, meanwhile, recorded $47 billion in net new flows during the second quarter, with investors showing an increasing appetite for international funds as the quarter came to a close.
Combined, equity and fixed income funds took in about $136 billion in new assets during the quarter, which registered as the best quarter for mutual funds in more than two years.
(07/15/09)