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Fixed Income Quarterly—Monthly Money Trail
is thus consistent with our expectations. The high yield com- ponent is rather self-explanatory, while the interest in global fixed income stems from the rather skimpy yields offered by GoC bonds versus many other jurisdictions.
We believe interest in corporate bonds will remain robust over the near term. Issuance has been reasonably slow to start 2014 compared to the previous few years, allowing spread performance to be quite decent. In addition, uncertainty over geopolitical risks and the pace of growth for the U.S., combined with emerging concerns about growth in China, has created a constant bid for fixed income product more generally to start the year, despite what the IFIC data shows in terms of net sales for domestic fixed income funds. Although retail investors are seeking fixed income exposure through balanced funds, at the institutional level demand for bonds remains reasonably steady, as suggested by the positive returns posted
Chart 1: Monthly Net Sales by Asset Class
by the FTSE TMX Canada (formerly DEX) Universe Bond Index so far to start the year.
We also believe the prevailing demand/supply disequilibrium that has traditionally characterized the market will buttress corporate bonds. Admittedly, international investors were net sellers of Canadian corporate bonds to begin 2014 (as discussed below); however, we believe their interest will resume. We similarly expect demand from crossover equity investors, asset swappers and short-term bond funds will be maintained over the foreseeable future. We have lamented the failure of the IFIC data to differentiate corporate bond funds from govern- ment bond funds in terms of investment patterns, but believe the net selling incurred by domestic fixed income is reflective of reallocating fixed income exposure away from GoC bonds rather than from fixed income altogether.
12.0 10.0 8.0 6.0 4.0 2.0 0.0 -2.0 -4.0
$7.1
Net Sales by Asset Class(1)
$7.6
$5.9
$9.3
$5.6
$4.0
$2.9
$5.4
$3.4
$3.7 $3.8
$2.2 $1.7 $0.9 $1.5
Bond Funds All Funds
$2.6
$1.9 $1.6 $2.1 $2.3 $1.7 $2.1 $2.6 $1.9 $1.0
$2.2
Equity Funds
Specialty Funds
Balanced Funds
Money Market Funds
(1) Net Sales Exclude Reinvested Distributions
Source: Data is compiled from IFIC and other sources to comprehensively reflect the size and activity of the Canadian Retail Mutual Fund Industry. Aggregate totals provided by Investor Economics. BMO Capital Markets
C$ Billions
Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12
Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13
Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14