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Canadian mutual funds hit by $469-million loss

Even so, January net redemptions less than expected

INVESTMENT REPORTER

00:00 EST Tuesday, February 18, 2003

The Canadian mutual fund industry saw a dismal kickoff to the crucial registered retirement savings plan season last month as frustrated Canadians drained $469-million from their funds, according to final January numbers released yesterday.

But the toll, while grim, was better than the preliminary net redemption estimate of $760-million, excluding reinvested dividends, made by the Investment Funds Institute of Canada earlier this month.

IFIC statistics manager Erwin Go said a few mutual fund companies, including Vancouver-based Phillips Hager & North, reported stronger sales than they had initially estimated.

IFIC president and chief executive officer Tom Hockin said $354-million of total net redemptions came from money market funds. Investors pulled only $115-million from so-called "long-term" stock and bond funds.

Investors often use money market funds as parking lots for cash.

Mr. Hockin said he hopes for positive sales in February, the height of the contribution season for registered retirement savings plans.

January marked the 10th consecutive month of net redemptions for the Canadian mutual fund industry, as a prolonged slump in stock prices have undermined investors' confidence.

Analyst Peter Loach at BMO Nesbitt Burns Inc. said mutual funds have seen net redemptions in January only once since record-keeping began in 1990. That was in 1995, when investors were nervous in the wake of the market turbulence of 1994.

He said that February of 1995 was also negative, and he believes the same pattern could be repeated this year.

Mr. Loach said his research indicates that many people are deciding not to make an RRSP contribution at all this year. He believes that decision is short-sighted, because people who don't make a contribution miss out on a significant tax break.

He noted that investors don't have to put their money into the stock market if they are still wary -- they can choose fixed-income investments such as guaranteed investment certificates instead.

But Mr. Loach does expect the money to return to the mutual fund industry eventually; he believes that people are just delaying their investment decisions.

"Hopefully, people will come to their senses and just put in some cash."

IFIC also reported that total assets under management decreased in January by 2.5 per cent, to $381.6-billion from $391.4-billion in December. Assets dropped 10.6 per cent from January 2002's figure of $427-billion.

George Vasic, strategist and chief economist at UBS Warburg Inc., said investors showed their aversion to risk again last month by investing in mutual funds that hold securities that offer a yield. Bond and income funds posted net sales of $200-million in January, while dividend and income funds raked in $187-million.

Meanwhile, equity funds continued to suffer. Net redemptions of Canadian equity funds totalled $269-million for the month, while foreign-equity funds posted net outflows of $242-million.

January sales decine

Net new sales excluding reinvested distributions, $'000

Fund type                 Jan.'03      Jan.'02    % change

Balanced..................$24,314.....$251,997......-90.4%

Canadian common shares...-269,277.......82,384.....-426.9

Foreign common shares....-242,368......408,567.....-159.3

Bond and income...........200,411......258,706......-22.5

Foreign bond and income....-7,010........6,349.....-210.4

Dividend and income.......186,786......237,910......-21.5

Mortgage..................-22,230.......-3,646.....-509.7

Real estate.................9,302........6,103......+52.4

U.S. common shares..........5,119......374,741......-98.6

Money market.............-403,696......807,369.....-150.0

Foreign money market.......50,092.......70,864......-29.3

All funds...............-$468,557...$2,501,344.....-118.7

SOURCE: INVESTMENT FUNDS INSTITUTE OF CANADA




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