Fixed Income Viewpoint
Monthly Money Trail: IFIC & International Fund Flows – April 2014
Lots of RSP Buying, but Little of It Canadian
Investors rang up an impressive tally for the last month of RSP season, with $9.3 billion of new purchasing activity reported by the IFIC data for February 2014. Similar to the trend that has been in place for the past number of months, little interest was exhibited for all sorts of domestic funds as both equity and fixed income incurred net redemptions, while international and global funds garnered the lion’s share of investor cash. Within this general context, there remained considerable in- terest in fixed income assets during February, whether directly or indirectly, which continues to counter the notion that any sort of broad asset rotation is presently under way amongst Canadian investors.
The biggest beneficiaries of investor affection last month were balanced funds, which received net investments of $7.4 billion. As we have noted for some time, balanced funds generally have a significant fixed income component between 30% and 40% in total assets and present a more prudent investment option for those who are uncertain about the direction of the mar- kets. Balanced funds by far have been the largest recipient of investor money over the past year, and more specifically global balanced funds, which in February experienced net investment of $5.8 billion. This pattern demonstrates that not only are investors pursuing a more cautious investment strategy, but also their predilection for international investments remains
Table 1: IFIC Statistical Overview by Asset Class
quite strong, especially given the relative underperformance of many domestic asset classes compared to international counterparts over the past couple of years.
In terms of asset types, it thus
appears investors are endeav-
ouring to construct their port-
folios on a more global basis,
diversifying their geographic
concentration risk. This trend
is apparent in both balanced
and equity funds, which have
traditionally received material
interest for investing in international assets, as well as fixed income directly.
Furthermore, there has been meaningful growth in demand for lower-rated fixed income product as investors seek to mitigate the adverse impact of paltry underlying GoC yields on portfolio returns. Accordingly, we expected investors to be particularly aggressive at adding higher-yielding assets to start the year since they have a longer time horizon to trade out of any un- derperforming positions. The strong showing for Global and High Yield Fixed Income in both January and February 2014
Jason Parker, CFA
BMO Nesbitt Burns Inc. jason.parker@bmo.com (416) 359-5410
($ thousands) Total Net Assets Net Sales(1)
Fund Type February-14 February-14 January-14 February-13
Equity Funds 348,929,885 2,011,678 1,592,036 558,369
Domestic Equity Global and International Equity U.S. Equity Sector Equity
187,675,516 94,334,671 51,903,579 15,016,119
(923) (61,819) 1,124,962 656,513 929,404 855,643 (41,766) 141,699
(256,924) 416,346 670,628 (271,682)
Balanced Funds 505,715,009 7,399,616 4,722,719 7,127,980
Domestic Balanced 233,626,921 1,628,797 754,301 2,014,084 Global Balanced 272,088,089 5,770,819 3,968,418 5,113,896
Bond Funds 135,749,884 (228,364) (566,987) 249,106
Domestic Fixed Income 95,274,148 (860,637) (1,395,906) (802,129) Global and High Yield Fixed Income 40,475,737 632,273 828,919 1,051,235
Specialty Funds 27,760,431 470,799 502,912 267,208
Long-Term Funds Total 1,018,155,211 9,653,729 6,250,680 8,202,663
Money Market Funds 27,018,266 (388,125) (608,607) (567,778)
Short-Term Funds Total 27,018,266 (388,125) (608,607) (567,778)
All Funds 1,045,173,477 9,265,604 5,642,073 7,634,885
(1) Net Sales Exclude Reinvested Distributions
Source: Data is compiled from IFIC and other sources to comprehensively reflect the size and activity of the Canadian Retail Mutual Fund Industry. Aggregate totals provided by Investor Economics. BMO Capital Markets